The significance of insurance in the context of purchasing a home cannot be overstated. It is not only a critical component, but a mandatory one when seeking financial assistance from lenders for a home purchase. Lenders need proof of adequate and appropriate insurance coverage before approving a loan drawdown.
These days you really need a valuation of the home being purchased to set the correct and allowable amount of cover to be sought. Banks and other lenders insist on this and then check the numbers in respect of what they are lending in dollar terms against the potential insurance pay-out in the event of damage to your house.
The lender seeks assurance that its lending is safeguarded, ensuring that your residence can be reconstructed optimally, while also covering the sum they have extended at a minimum. It's important to note that insurance policies can vary, potentially entitling you to the cost of restoring the dwelling to its pre-damage state.
While fire and intentional damage form the bedrock of insurance coverage and underscore its critical importance, today's considerations also extend to earthquake and flood risks, encompassing potential landslides or subsidence, all of which must be factored into the insurance arrangement.
In some cases, it may be prudent to include further clauses in the purchase agreement subject to securing insurance. This is particularly relevant for properties situated in areas prone to overland flow paths or flood zones.
When purchasing a property , it's common to underestimate the complexity of the transaction. The transaction itself may contain many fishhooks, such as checking land covenants, other registered interests against the title, building reports as well as warranties for new builds to working out tricky timelines relating to tenants vacating properties to comply with tenancy laws, kiwi saver withdrawal time frames, Kainga Ora home grants and now the recently implemented Kainga Ora first home partner shared ownership scheme as of August 14, 2023, can present challenges.
If you would like to talk with someone about navigating the complexity of property purchase, our property lawyers are well-equipped to assist you with any part of your journey.
Good advice never costs more money!
Don't hesitate to contact Taufil Omar - Special Counsel, Private Client Team
© McVeagh Fleming 2023
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.