What insurance do you need when buying a house?

When getting ready to buy property, there are many things to keep track of as settlement approaches. An important consideration is what you will need in terms of insurance – admittedly not the most exciting part of buying a new home, but one which can save you money and stress in the future.

What insurance do you need when buying a house

Why lenders often require insurance

While not a legal requirement, insurance is often required by lenders, and they may want to see your policy before either the exchange of contracts or ahead of the settlement.

As the lender has a stake in the property during the life of the loan, they will want to know should the property be damaged or destroyed, if any large insurance claims are made, and if your insurance lapses.

Types of insurance

There are various forms of insurance relating to your property, these include:

  • Home or building insurance – to protect you against damage to the property (such as due to an extreme weather event like fire or floods).

  • Contents insurance – to safeguard you against theft or accidental damage to your belongings.

  • Lenders Mortgage Insurance (LMI) – to cover the lender should you default on your repayments (note: LMI is a one-off payment by the buyer, not the lender).

  • Landlord insurance – to protect your property if you are renting it out.

  • Mortgage protection insurance – to cover your mortgage payments in case you or your partner become unemployed, seriously ill or die.

Home and contents insurance

Home and contents insurance, is often what buyers think of when it comes to getting insurance.

There are two main types of home insurance: sum-insured cover (which means the insurer will pay for repairs or a rebuild up to an estimated amount you specify in your policy) and total replacement cover (which means you will be covered for your home to be repaired or rebuilt as it was without you having to set a specific sum-insured limit).

Total replacement cover is more expensive and not all lenders offer it, so keep that in mind. As for contents insurance, you tend to be covered for the replacement value of your belongings.

According to statistics from Finder in January 2023, 60% of survey respondents have some form of home insurance policy. An interesting finding was that only 43% of respondents with home insurance said that they fully understood their home insurance policy. While 48% said they partially understood it, 8% didn’t understand the benefits and inclusion of their policy.

It’s important to know what you are covered for, such as which type of event. Home and contents insurance don’t cover everything, so check the exclusions – these might be a house left unoccupied that is then damaged, doing renovations, any existing damage and damage caused by pets.

You can usually request additional insurance, for example, covering high value items such as expensive jewellery or fixing that hole in the wall, so it’s worth checking what is included in your policy and whether it’s worth paying extra.

Do you need insurance before settlement?

As mentioned above, some lenders will ask to see proof of insurance before any contracts are exchanged. In some instances, the lender will ask that your insurance is effective from the date you sign the contract or before the loan becomes conditional.

Depending on which state or territory you live in, you may be responsible for damage to the property as soon as contracts are exchanged. Here is a list on each area’s requirements:

  • ACT, TAS & SA – the buyer is responsible for damage to the property as soon as contracts are exchanged.

  • NSW & VIC – the buyer is responsible for damage to the property on settlement.

  • QLD – the buyer is responsible for damage to the property from 5.00pm the next business day after the contract date (before settlement).

  • WA & NT – the buyer is responsible for damage to the property on whichever comes first: either the date the whole purchase price is paid, or the date the buyer is entitled to or is given possession of the property.

i https://www.finder.com.au/home-insurance-statistics

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

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Authorised Representative 298494
Interprac Financial Planning Pty Ltd 

Darryl Jopling

Senior Adviser

I have worked in the financial services industry since 1982 and as a Financial Adviser since 1999.

I have worked for large Financial Planning businesses, Membership based organisations and looked after the financial planning needs of clients within an Accounting Practice before starting my own business.

I am married, have 4 older children and a grandson and I am keen golfer with mixed results like many .

I have been through many of the strategies I talk with clients about myself and with my family.

I have been through the journey of seeing my parents move into Aged care and negotiated the difficulties and pitfalls of understanding the system for them and this gives me an excellent insight into what is required to assist families at this difficult time.

In a previous roll I used to run retirement seminars looking at Centrelink and Retirement Incomes and how to make these work for you. I have helped many of my clients with Aged Care advice when their parents needed to move into Nursing Homes. For many clients I assist them with superannuation, building wealth and protecting their loved ones with insurance.

I am supported by his, Licensee, Interprac Financial Planning’s in-house resources and ongoing technical, systems and training.

I am committed to understanding your needs and identifying strategies and products to help you achieve your goals.

My guiding principle as an Adviser is to design plans which help to provide my clients with clarity of purpose and the opportunity to build a solid financial foundation.
I will take the time to listen, explain things clearly and keep you informed throughout the advice process.

My experience is complemented by professional qualifications including:

  • Certified Financial PlannerTM Professional
  • Diploma of Financial Planning

At Choice Financial Advice we work with you along the way on life’s journey.

Whether you are getting married, starting a family, embarking on the trip of a lifetime, planning to enjoy your years after work or assisting elderly parents with Aged Care and Nursing Home placements, we can help.