When you're purchasing a home, making sure the sale and purchase agreement includes the right conditions that cover insurance – such as an insurance condition or due diligence condition – are just as important as arranging finance or getting the property inspected.
In the current New Zealand market, insurance is becoming a more complex and critical consideration. Climate-related risks such as flooding, erosion, and seismic activity are influencing both lending practices and the availability of insurance cover.
Why an insurance condition matters now more than ever
The reality is that some insurers are currently refusing cover for certain properties or categorising them as ‘high-risk’ with escalating premiums and stricter terms. This creates a two-fold issue for buyers:
- You may sign a purchase agreement without any conditions that allow you to assess insurance, only to later discover the property is uninsurable or cost of cover becomes prohibitive.
- If your lender requires you to insure the property – and you can’t get cover or afford it – you may be exposed.
Without the right conditions in your agreement, you could find yourself legally bound to settle on a purchase that exposes you to risk.
What should your insurance condition cover?
To protect yourself, your insurance condition should allow you to:
- Obtain satisfactory insurance cover – this means cover that meets your needs, whether for the property itself, contents, or liability.
- Secure that cover within a reasonable timeframe, so you're not rushed into accepting unsuitable terms.
- Ensure the insurance terms are acceptable to you, including premiums, excesses, exclusions, and any special conditions.
- Withdraw from the agreement if you're unable to obtain insurance that meets your requirements.
Making sure your conditions work together helps prevent unexpected issues and reduces the risk of being caught out by one condition failing while another is satisfied.
What buyers should ask before signing
- Ask the vendor or their agent: “What is the current insurance premium and who is the insurer?”
- Check if the property is in a known hazard zone – such as an area prone to flooding, erosion, or landslides – and ask if any insurers have declined to renew cover or applied exclusions.
- Ask for a copy of the LIM report and any council updates on natural hazard risks.
- Check what information is available on the Natural Hazards Portal.
- Seek pre-approval from an insurance broker so you know what cover you can get and at what cost.
- If you’re getting a mortgage, check whether your lender has any specific insurance-related requirements or restrictions on the type of properties they will fund.
The Bottom Line
As the insurance landscape continues to evolve, including the right conditions in your agreement is a simple yet vital step that can prevent major stress and risk down the track.
At Aspiring Law, we advise all buyers that insurance should be a key consideration of your purchase – not something to leave until later.
If you would like help drafting or reviewing your agreement to ensure it includes the right protections, we are here to help. Reach out to discuss how we can ensure you are protected you before you commit.
