Insurance Risks When Buying Property
When purchasing a property, there are a myriad of considerations to take into account before signing contracts. One often overlooked component of the Due Diligence process is analysing whether there are risk factors present that will push your insurance premiums through the roof.
One such example in Newcastle comes to mind. Prior to becoming a client of ours, two prospective homebuyers almost purchased a property that was all but uninsurable. With a natural watercourse running along the back boundary, they knew there was flood risk, but not what that translated to in insurance premiums. They found out it would cost them $10,000 per annum to insure the property which was enough to tip them over the edge and rescind on the contract.
That’s why as part of our Comprehensive Buyers Agent Services and Due Diligence Reporting, we obtain quotes from prospective insurers BEFORE our client commits to purchase.
So what contributes to higher insurance premiums?
Location Factors
Properties located in areas that are prone to natural disasters, such as bushfires, floods, or cyclones, are more likely to have higher premiums. In addition, areas with a high crime rate or a history of theft may also result in higher premiums. It is essential to research the location before purchasing a home and to inform the insurer of any risks in the area.
Age of property
Older homes may have outdated electrical systems, plumbing, and roofing, which can increase the likelihood of damage and loss. Additionally, older homes may not have been built to current building codes and standards, making them more susceptible to damage. Insurance companies may charge higher premiums for older homes to account for these risks.
Building materials
Properties built with high-quality and durable materials such as brick, stone, or concrete are less likely to sustain significant damage in the event of a natural disaster or fire. In contrast, homes built with less durable materials such as wood or composite materials may result in higher premiums as they pose a greater risk of damage.
Home security
Properties with robust security features such as security alarms, deadbolts, and security screens are less likely to experience theft or break-ins, which can lead to reduced premiums. Insurance companies may also offer discounts for homeowners who install additional security measures such as CCTV cameras or motion-activated lighting. As part of our assessments, we often advise clients where they can install security measures as an insurance cost-saving measure whilst also giving them valuable piece of mind.
Personal factors
Older homeowners or those who work from home may be viewed as lower-risk customers as they are more likely to be at home and able to detect potential issues early. Additionally, customers with a history of making claims or who have poor credit may be viewed as higher risk and may be charged higher premiums as a result.
After all is said and done, it’s safe to say that knowing your insurance risk is a critical component of the Due Diligence process. It is essential to research these factors before purchasing a property to ensure you won’t be surprised when organising your Certificate of Currency (a certificate issued by your insurer that is required by your bank in order to settle on the property). Using our expert team and defined processes will ensure you’re completely aware of your insurance risk well before committing to purchase.