Buying a house, and insuring it

The timeline

Cover generally needs to be in force on the day of closing, and evidence of it is typically required in advance rather than on the day. The lender will usually want proof, and often the first premium paid, before funds are released.

Start earlier than feels necessary. Quoting is quick, but a property with something unusual about it — an older roof, a previous claim, an unusual construction — can take longer to place, and discovering that on the day is a poor time to discover it.

A binder is what evidences cover before the full policy documents exist. It is a temporary confirmation that the policy is in force and is usually what a lender accepts.

What the lender requires

Broadly, that the building is insured for enough to rebuild it and that the lender's interest is recorded on the policy.

The figure is a rebuilding cost rather than a purchase price. The two are different — a purchase price includes the land, which does not burn down — and confusing them produces either a badly over-insured or a badly under-insured policy.

Where the property is in a designated high-risk flood area, separate flood cover will generally be required as well, because a standard policy excludes flood.

What to check about the property

Insurability is worth assessing during the purchase rather than after it, because some of these are expensive to resolve and some affect whether the property can be covered at all.

• The age and condition of the roof, which affects premium, settlement basis and sometimes eligibility
• Electrical, plumbing and heating systems, particularly older types that insurers treat cautiously
• The claims history of the property itself, which follows the address rather than the owner
• Whether it sits in a designated flood area, and whether it has flooded regardless
• Distance from a fire service and hydrant, which affects rating
• Any pool, trampoline or outbuilding, which affects liability

Setting it up properly at the start

The first policy tends to become the permanent one, because renewals roll forward and nobody revisits the settings. It is worth getting the important ones right now.

Set the dwelling limit on rebuilding cost, choose replacement cost over actual cash value unless there is a reason not to, pick a deductible you could actually produce, and set the liability limit deliberately rather than accepting the default.

Then ask which endorsements are included and which are not — water backup and ordinance or law in particular, since both close gaps most new owners do not know exist.