Do you need insurance when buying a house?
We all like feeling secure. Insurance is protection against the things that can go wrong. Yes, it costs a bit of money but insurance gives us peace of mind that if things go awry, we will be okay financially.
But do you need insurance when purchasing a house? And if so, which insurance do you need, and when and how do you get it?
Here, we break down these questions and provide some suggestions to guide you.
Do you need insurance?
Most lenders will require you to have home insurance before purchasing a new house. A copy of your policy may need to be sent to the lender before exchanging contracts, or in some states, before settlement.
Which insurance do you need when buying a house?
There are many different types of insurance. Let’s break this down.
- Home or building insurance: Home insurance or building insurance will protect you against damage to your property caused by uncontrollable elements such as fire or flood. Building insurance can be total replacement cover, which includes all the costs to rebuild your home as it was. Alternatively, it can be sum insured, which means you are covered for a specific amount.
- Contents insurance: If you are renting, you may already have contents insurance. Contents insurance protects you against theft or accidental damage to your belongings. You can get a combined home/building and contents insurance, which will ensure both the building and its contents are protected.
- Lenders Mortgage Insurance (LMI): Lenders mortgage insurance is insurance taken out by the lender (not the purchaser) to protect them, should you default on your repayments. The purchaser covers LMI on the lender’s behalf, which adds a cost to the loan repayments (if the insurance premium is added to your total loan). But LMI may only be applicable if you are borrowing more than 80 percent of the house value.
- Landlord insurance: Landlord insurance is an option if you are renting out your house or purchasing an investment property for future rental. Landlords insurance is a good idea if you are purchasing your property as an investor. Landlords insurance protects you against tenant theft, deliberate damage caused by tenants or if tenants default on rent payments.
- Mortgage protection insurance: Mortgage protection insurance is a form of personal insurance that your mortgage holder can take out to ensure you will not default on your loan, should your financial circumstances change. The monthly cost of mortgage repayments will be covered should you or your partner become seriously ill, die or lose a job.
When do you need to get insurance?
It’s wise to get home insurance before completing the purchase of your new home to minimise the gap between the previous vendor’s insurance and your own. Get contents insurance sorted before moving in, to protect against any accidental loss or damage during the move. However, this process may vary depending on the state and territory, so it is a good idea to discuss this with your Mortgage Choice broker first.
How do you get insurance?
The insurance market is competitive, and there are many options to research and navigate. If you need a hand stepping in the right direction, give your Mortgage Choice Broker a call.