Questions about insurance between exchange and completion

Why do I need to arrange property insurance between exchange and completion of purchase contracts?

When you are buying a house, your solicitor will instruct you to arrange buildings insurance upon exchange of contracts. This is because of the Standard conditions of sale (5th edition) – the standard conveyancing contract wording introduced by the Law Society to make purchasing a property quicker and easier with solicitors and conveyancers across England and Wales using the same wording.

The document states that upon exchange of contracts, it is the responsibility of the purchaser or buyer to insure the building until completion date. The vendor or seller has no legal or contractual obligation to insure the property between exchange and completion.
This means that from minor damage, to a major disaster at the property, the buyer is responsible for the cost of repairs from the moment exchange has occurred. 

You say the seller is not obliged to insure the house after exchange of contracts. Can I cancel the insurance on the property I am selling after exchange?

Although the contract specifically states that the seller is under no obligation to provide buildings insurance between exchange and completion, we definitely don’t recommend that a seller cancels cover on the property until contracts have completed, for a number of reasons.

You shouldn’t assume that the buyer has insured the property, despite their obligation to do so. If something does go wrong, you don’t want to be left with no back-up plan.Even if the purchaser has insured the property, there are reasons policies can fail, particularly at this time. If they made a mistake on the details supplied to their insurer, their policy may be void. A common error is a buyer failing to advise his insurer that he is not yet living in the house, which is occupied by the seller until completion. Many insurers will not cover this period even when they have been advised.  
So even though you are under no obligation to the buyer to insure the property, you still need to protect yourself. If the buyer hasn’t insured the property and a disaster occurs, the buyer is under contract to complete the purchase. However, if the damage is not insured, the buyer’s mortgagee is likely to withdraw their offer, leaving the buyer unable to obtain funds. If he hasn’t got any more money, you will be left with no buyer, a damaged property and little prospect of recovering your losses.
Furthermore, even when the buyer has insured the property, there are many reasons their policy could fail… undisclosed convictions, undisclosed claims, mistakes on proposal forms, or they might have bought a household policy with no provision for cover between exchange and completion, rendering their policy useless in the event of a claim.  

Doesn’t this mean the property is insured twice?

It is true that in most cases, both the buyer and the seller will hold an insurance policy in their own respective names, insuring the same building. However, household insurance policies have a specific section providing cover when you are selling your home, which transfers the insurable interest between exchange and completion to the buyer. This is included as an additional protection for the policyholder (the seller) and the section is almost always automatically voided when the buyer takes out his own policy, meaning the property is only covered by the buyer’s policy during the exchange to completion period. The seller’s policy serves as a back-up for the seller in case the buyers policy fails or the buyer hasn’t arranged one.

So why can’t a buyer rely on the vendor’s insurance between exchange and completion?

This is just not something which can be relied upon.
As there is no legal requirement to hold household insurance, many people simply don’t have any. When you exchange contracts to buy a house, you are signing a legal contractual obligation to protect the property until completion. If damage occurs, it will be your responsibility to pay for repairs.
Your bank, building society (or other lender) will usually request that: a) you provide them with a copy of an insurance policy arranged in your own name, and b) that they are noted as an interested party, where they have the right to be named on your policy as mortgagee.If the seller had insurance, they may have cancelled their policy on exchange, as the seller has no obligation (to the buyer) to insure the house after exchange.The seller may not have insured the building adequately – if a property is insured with an inadequate buildings sum insured, it can lead to substantial claims shortfalls..The vendor may have made mistakes or failed to disclose information to their current insurer, rendering their policy void.

I am buying a flat in a block which is managed by a managing agent. Do I need to take out buildings insurance?

Usually, no. When a block of flats is managed by an agent, it will normally be insured under a specialist property owners policy covering the whole block. You should contact the managing agent and ask that your name be added to the existing policy. Only when there is no block policy is in force do you need to insure separately. Ask your conveyancer to confirm the position.

I am buying a new-build property from a developer. Do I need to insure it on exchange?

If you are buying a new house from the developer, the developer’s contactor policy should provide cover until the completion date. There is an optional provision in the standard conveyancing contract for both parties to contractually agree that the developer will retain the responsibility to insure the property until completion. You should check with your solicitor that this has been applied.

The house I am buying a house which is currently let to tenants. Do I need to insure it between exchange and completion?

No. The Standard Conditions of Sale (5th edition) document specifically states that if the seller has a legal or contractual obligation to insure the building (which, if it is tenanted, they do), then the obligation to insure does not pass to the buyer until the tenants have vacated or completion takes place. You should ask your solicitor to check with the seller’s solicitor that they have still got cover in force. 

What if I need cover for more than 90 days between exchange and completion?

In some cases, there is a longer period between exchange and completion of the purchase contract.Unfortunately, we can only offer cover on this contract for up to 3 months. However, should you require more cover, a further policy can be taken out on expiry. This should be done in the usual manner on our quotation system, using the expiry or end date of your initial policy as the new start date. Do ensure that you have made a note in your diary, as we will not send a reminder.

Can my existing insurer offer me this cover?

Many insurers are unable to offer to cover the new purchase for their customers prior to completion, although some are prepared to take on the new property on your existing policy. However, their standard documentation will usually state that you own the property and live in it, which is obviously not going to be the case. You should therefore obtain written confirmation from them that: a) they are aware that the property is lived in by the current owners, b) they are aware that you will not own the property until completion of contracts You should also ask for details of the annual premium on the new property, as this approach restricts you to just one insurer, whose premium and terms on your new property might not be competitive, or even suitable for your ongoing requirements.
Arranging a short term policy specifically designed for this situation leaves you free to select the best insurer for your needs once you move in, so you can be happy that you’ve found the best deal available for the long term.