What insurance cover does a homebuyer need?

Q. We have been offered low-cost insurance protection on the house we are buying — but what insurance cover do you actually need when buying a property?
A. Until exchange of contracts, sellers have no strict legal obligation to insure or maintain. Buyers are supposed to take the property as they find it on the contract date. But once contracts are exchanged, specific insurance provisions usually kick in. Condition 5.1.1 of the Law Society’s Standard Conditions of Sale states that a property is “at the risk of the buyer from the date of the contract” unless the parties agree otherwise.
It follows that buyers (not sellers) must generally take out insurance against the risk that the property might be damaged or destroyed between exchange and completion. Buyers should therefore take out a basic buildings policy from the date of exchange — even if the property is still insured by the seller. Although the parties can agree to make the sellers responsible for continuing their existing insurance policies after exchange, many insurance companies simply won’t allow this.
Ordinary building insurance policies such as these should not be confused with cheaper “buyer” and “seller” policies, which are becoming more popular. Buyer and seller policies cater for the risk that a party pulls out of a sale after an offer is accepted, and typically pay out for any wasted legal fees, survey costs and mortgage fees.
Buyer insurance protects buyers against being gazumped by someone else, or the sale falling through before exchange of contracts — because of a bad survey, for instance. Seller insurance policies protect sellers against buyers withdrawing before the date of the contract. These policies therefore cover a different kind of risk at a different stage of the sale process.
You can therefore take out a homebuyers’ insurance policy between offer and exchange. But once you exchange contracts to buy the house, you will generally need a full building insurance policy until the sale completes.
Mark Loveday is a barrister with Tanfield Chambers. Email questions to [email protected]