Home insurance during exchange of contracts – what you need to know
During the process of buying a house, short-term buildings insurance may need to be arranged to cover the property.
If you are purchasing a property and you have signed a contract committing to buy the house, the home is not technically yours yet as you need to wait for other aspects to be confirmed, such as conveyancing and searches.
Do you need house insurance when you exchange contracts?
Yes, it is very important to be aware that once you exchange contracts, you instantly become responsible for the property, so you must make sure that there is at least a buildings insurance policy in place at this stage, just to offer protection in case something disastrous happens between now and your move-in date.
To get the best price, it’s highly recommended that you shop around for quotes before the exchange of contracts so that you know what sort of prices you’ll be expected to pay and you’ll be ready to sort it out quickly when the time comes. You can do so with Bobatoo:
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Home buildings insurance between exchange and completion
You could be forgiven for having lapses in concentration when in the midst of the complex, stressful and generally laborious process of home-buying, as there’s so much to do and so much to remember. And then there’s the innate timing of everything.
Solicitors, banks, mortgage lenders, surveyors, conveyancers and any integral buyer/seller chains are all key to smooth runnings, yet the fact that pretty much everything in terms of controlling the situation is wrestled away from you during this transient period can be very frustrating. And preying on your mind is the fact that until such time as contracts are exchanged then neither side has any legal obligation to buy or sell the property, so you might feel that you’re in something of limbo; a no-man’s land whereby the plug could, hypothetically be pulled at any given moment.
Which is a shame really as, more than anything else, this should be one of the most exciting times in your life, as it represents a new beginning or a fresh start where boundless possibilities open up before you and you envisage just what it will be like living in your new home.
With your mind quickly turning towards where your existing furniture will best fit into this new layout and what interior design marks you wish to make on your new property, you dream of stamping your unique identity on the place the moment you receive the keys to the front door and close it for the very first time. But hang on one minute. Before you get too carried away, there’s the small matter of home insurance to think about.
Homeowners are generally advised to have two home insurance policies or a combined policy which includes buildings and contents cover (a combined is often the cheapest option), but for the interim between exchange of contracts and moving in, you’ll definitely need a home buildings policy to ensure that the cost of the building is protected in the event that any damage happens to its structure.
Here's what else you need to know...
Homebuyer’s responsibility to arrange buildings insurance policy to cover period between exchange and completion
The buck stops with you when it comes to insuring the property in this intervening period between exchanging and completion. You, in your capacity as the homebuyer, are solely responsible for ensuring that the house is covered by a dedicated buildings insurance policy for any eventualities during this often undefined passage of time.
However you should also make sure that the necessary contracts clearly state which party is arranging the cover so everyone has a shared understanding of the plan.
To clarify matters – and leave you in no doubt as to your responsibility – your solicitor will probably instruct you to sort out the insurance as soon as the contracts are exchanged, while some solicitors/conveyancers have been known to refuse contract exchanges until the buying party has provided evidence to support the claim that they’ve sorted the buildings insurance policy to set in motion between exchange and completion.
But don’t just take our word for it, as standard conveyancing wording (as recommended by the Law Society) refers to the ‘Standard Conditions of Sale (5th Edition)’, which makes no bones about the responsibility resting firmly on the shoulders of the homebuyer when it comes to arranging the appropriate cover.
Don’t be fooled by the seller/vendor’s home insurance policy either, which implies that it will cover the buyer automatically until the contracts are completed, as this is a red herring. Provided under a third party’s insurance policy more often than not it won’t be sufficient to satisfy your solicitor’s demands, as it’s likely that they’ll also represent the interests of the mortgage lender, bank or building society. In this instance they stipulate that an insurance policy is in the buyer’s name and under their control, so as to minimise the potential for any unforeseen problems arising somewhere down the line.
Put it this way, only by rubber stamping your own buildings insurance policy will you be best placed to determine that the proposal made to your insurer has been ratified after taking into account full and adequate provision of cover and disclosure of all relevant information beforehand.
Most solicitors/conveyancers won’t proceed until prospective homebuyer provides buildings insurance policy confirmation for intervening period between exchange and completion
Home insurance experts offer sound advice which should be heeded to, suggesting that if the purchaser is required to insure the property courtesy of a buildings policy then it’s imperative to have that specific cover in place immediately after the exchange of contracts through to the official completion date, irrespective of whether or not the seller’s insurance plan purports to cover the buyer in these circumstances.
There might well be a time and a place where the generally accepted obligation of insurance from a buyer’s viewpoint is seemingly not required by the other parties involved, but we would still advise homebuyers not to rely on the seller’s policy in its entirety, so as to be on the safe side. And that’s because you can’t guarantee that – for their part -they haven’t been disingenuous in their original accounts given to their building insurance provider at a previous time. There could be a list of nagging questions which eat away inside and which will remain unanswered which could easily compromise the transaction. In as much as it leaves you as a buyer liable to future issues.
For example, questions such as
- Has the seller insured the property for the correct amount should it need rebuilding after sustaining irreparable damage?
- Have they been honest and accurate with all the details for the property as cited on their existing insurance proposal (e.g. the disclosure of up-to-date information about claims histories, convictions and financial histories re: all occupants)?
- Are there any restrictions in their insurance policy which you might not have been aware of from the outset?
At the end of the day, you’re deciding on putting your trust into a complete stranger, with the security of arguably the biggest investment you’re likely to ever make in your life at stake.
Despite the best will in the world, if a mistake has been made at some point, the policy risks being voided as a direct result, meaning that the property would therefore not be insured properly in the event of worst case scenarios taking place during this period, such as storm damage, fire, floods and various acts of God which could befall the bricks and mortar you so desire.
Double insurance is not a risk unless more than one claim is submitted for same event and liability
Having said this, therein lies what could be another problem, namely double insurance.
Many people are led to believe that home insurance providers won’t even entertain the idea of arranging cover for the buyer if it overlaps with the seller’s current policy, with regards to term. This isn’t the case though, because as far as your insurance company is concerned, you (as a buyer) are recognised as a separate entity from the seller, and can be insured for the same risks on the one property during the interim without being culpable for intentional double insurance.
Dual insurance for conveyancing purposes is indeed the norm and is largely unavoidable. In reality there are no laws to stop double (or even quadruple) insurance, yet what cannot be made is more than one claim for the same event and liability.
As a footnote to this – and something you should be well aware of – is the underlying fact that most home insurance policies incorporate features which state that the benefit payable under a policy is routinely passed on to the buyer of the property in question should damage occur between exchange and completion, unless suitable alternative buildings insurance has been arranged by the buyer; in which case this condition is withdrawn automatically by an escape clause (effectively nullifying that benefit).
How long will I need to get home insurance for?
In terms of length of time normally endured between exchange and completion, we’re typically talking anywhere between a few days, to a couple of weeks or a number of months, as it all hinges on any other buyers and sellers if you’re part of a chain reaction at this juncture which can often be the state of play.
Your solicitor should be able to help you with knowing how long to put a short-term building insurance policy in place for.
Short-term, temporary home buildings insurance explained
Temporary home cover is a different product to standard home insurance, as it only provides you with financial protection for a short period of time, rather than a year which it normally does.
This type of policy is needed when a house is going to be unoccupied temporarily, for reasons such as the following:
- You have purchased a property and can’t move in yet
- You are going away on a long holiday
- Your house is being renovated and you need to live elsewhere temporarily
- You’re in the process of waiting for a Grant of Probate to be complete and noone is living in the property in the meantime
- You’ve already moved into a new home, but you still haven’t sold your previous home
- You rent out a property and there’s a gap between a tenant leaving and another moving in
Generally, standard home insurance will not cover a property if it is left unoccupied for over 30 days, which is why a short-term policy is needed in certain situations such as the above.
If you’re not sure what type of policy you’ll need, it’s best to ring your current provider or speak to your solicitor to explain the situation and they’ll be able to advise you on the type of protection you need to get.
When you do get a policy, make sure you fully understand what it does and doesn’t cover you for, as there could very well be exclusions.
Should I cancel the home insurance policy that’s covering the property I'm selling?
Not until all contracts have been completed, as you can’t be 100% sure that the buyer has insured it, so if something goes wrong after cancelling your policy, and it turns out that the buyer didn’t purchase cover, you’ll have a lot of cost to cover yourself.
For peace of mind, it is still important to protect yourself for all eventualities, so avoid cancelling your old property’s policy until you have written proof that everything has gone through successfully.
What if damage is caused to the property between exchange and completion? Who’s responsible for the costs?
If you’ve already exchanged contracts and the property gets damaged, the seller of that property must inform you about it, whether it’s a broken window or blown down fence.
It’s not, however, the seller’s responsibility to get any damage repaired; it will be your responsibility to sort this out and cover the costs, which is why it’s good to have insurance already in place should you need to make a claim.
What to remember
To summarise: it’s the prerogative of the homebuyer to ensure that their insurance policy commences immediately upon exchange of contracts, regardless of what insurance provisions the seller has on the property so as to safeguard their interests, and is your obligation under the Standard Conditions of Sale (5th Edition).
The only exceptions to this normal rule of thumb is if a different, or amended, contract wording is being used. The best example of this is if you are purchasing a property from a house-builder, where a different contract will often be used.
For more information regarding buildings insurance, read our useful guides below.
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