Buyers’ Guide to Property Insurance in NSW: What Homebuyers Need to Know About Lender and Strata Requirements

When purchasing a property in New South Wales, obtaining insurance is a crucial step to protect your investment and satisfy lender requirements. Here are the general requirements and considerations for obtaining property insurance:

When should I get property insurance?

In New South Wales, you become liable for damage that occurs to the property from the date of settlement. This means that you should ensure that any building insurance policy commences no later than the date of settlement.

You should speak with your lawyer to determine the settlement date for your purchase based on the contract for sale.

What are the general requirements for property insurance?

Some of the things to think about when you are getting building insurance over your property are as follows:

1. Property details: Insurers will require detailed information about the property, including its location, size, age, and construction materials. This helps assess the risk and determine the premium.
2. Valuation: An accurate valuation of the property is necessary to ensure adequate coverage. This includes the building and any significant fixtures or improvements. You should speak to your broker as they may be able to assist you to determine
3. Risk assessment: Insurers will evaluate potential risks such as flood zones, bushfire-prone areas, and crime rates in the vicinity. These factors can influence the cost and availability of insurance. Your lawyer should be able to advise you on whether the property you are purchasing is in a bush fire or flooding zone (which will likely impact your insurance premiums)
4. Disclosure: Full disclosure of any known issues or previous claims related to the property is essential. Failure to disclose can result in denied claims or cancellation of the policy.
5. Policy selection: Choose a policy that covers the building, contents, and liability. Consider additional coverage for specific risks like floods or earthquakes if applicable.
6. Lender requirements: Most lenders require that insurance be taken out over the property as a condition of their loan approval. The insurance policy must note the lender as an interested party. This ensures that the lender’s financial interest in the property is protected. Proof of insurance generally needs to be provided to the lender before the loan is finalised.

Do the same property insurance requirements apply for strata properties?

For strata properties in New South Wales, the insurance requirements differ significantly:

1. Building insurance: In a strata scheme, the Owners Corporation is responsible for insuring the building and common property. This means individual lot/unit owners do not need to take out separate building insurance for their unit.
2. Common property: The insurance covers common areas such as lobbies, gardens, and shared facilities. It is crucial to ensure that the Owners Corporation maintains adequate insurance coverage. If you obtain a strata report for the property (as part of your pre-purchase due diligence), this will set out the current insurance that is in place.
3. Contents insurance: While building insurance is covered by the Owners Corporation, individual unit owners should obtain contents insurance to protect their personal belongings within their unit.
4. Lender requirements: Most lenders do not require borrowers to provide evidence of building insurance held by the Owners Corporation. Accordingly, if you are purchasing a strata property (e.g. a unit, apartment or townhouse), your loan approval is unlikely to be conditional on you providing the lender with evidence of the building insurance. You should speak to your broker to confirm this.

What are some other common insurances to consider?

Title insurance can protect buyers against legal risks that can threaten the ownership of the property they are purchasing or affect their right to occupy and use the land  (e.g.:  illegal  building  works,  boundary  issues,  fraud  and forgery  against  their  certificate  of  title,  unpaid  rates  and  taxes,  unregistered rights of way and easements, adverse possession and zoning non-compliance).

Whilst lawyers can identify certain risks during the conveyancing process, by reviewing and advising buyers  on  the  disclosures  made  by  the  seller,  lawyers  cannot advise  on  matters  that  the  seller  may  withhold  or  that  remain  undiscovered during this process. Whether or not title insurance is beneficial will depend on a person’s risks and circumstances.

You can learn more about title insurance, why it is important and what it costs here.

If required, we can arrange for a title insurance to be drawn for buyers to purchase as a part of the conveyance process.

Get in touch with us

If you need a lawyer to act for you in relation to the purchase of property, please check out our Buying a Property Information Centre, where you can get more information about our conveyancing services and get an instant quote.

We’re here to help you every step of the way!