Buyer Guide

Insurance Considerations When Buying Property

Vetting house insurance eligibility is a critical step in the property buying process. In New Zealand, banks **will not release mortgage funds** on settlement day unless you provide proof of active building insurance cover.

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Oversight List

✔ **Certificate of Currency**: Mandatory bank mortgage release proof.

✔ **First Mortgagee**: Registering your lender on the policy.

✔ **Sum Insured Check**: Sizing rebuild costs, not market prices.

✔ **EQC Cover**: Natural disaster integration automatically bundled.

Property Risk Allocation & Lender Rules

1. Whose Risk Is It? (Pre-Settlement)

Under the standard ADLS Sale and Purchase Agreement, **the property remains at the risk of the vendor (seller) until the day of settlement or possession** (whichever occurs first). If the house is damaged before settlement (e.g. by fire or flooding), the seller must repair it or negotiate a price reduction.

**The Trap**: Although the seller holds the risk until settlement, **you must arrange your building insurance policy to start on settlement day**. Banks require this active cover as a condition of your mortgage drawdown.

2. The Certificate of Currency (CoC)

To release your mortgage loan, your bank requires a formal legal document called a **Certificate of Currency** (CoC) from your insurer. This document certifies that:

- The property is insured for full replacement value (under the Sum Insured model).
- The policy starts on or before settlement day.
- Your bank's official legal name is registered on the policy as the **Interested First Mortgagee**.

We collect this certificate from you and submit it to your bank along with our Solicitor's Certificate. Without it, the bank will withhold mortgage release.

Critical Insurance Risks for Buyers

Auckland Hazard Zones

Following severe weather events in Auckland, insurers have placed strict embargoes on hazard zones. Properties in flood plains, overland flow paths, or active landslip registers are often denied cover.

Check Early: Confirm insurance cover during the conditional period. If you go unconditional and cannot secure insurance, your bank will not lend, leading to default.

Legacy Wiring Trap

Older Auckland villas or cottages built before 1960 often contain outdated electrical systems, such as **vulcanized rubber (TRS) or knob-and-tube wiring**.

Insurance Denial: NZ insurers normally deny cover or impose a strict warranty requiring complete rewiring within 60 to 90 days. We review your building report to identify these wiring risks.

EQC Natural Disaster Cover

In NZ, standard house insurance policies automatically bundle natural disaster cover under **Toka Tū Ake EQC (Earthquake Commission)** rules.

Oversight: The EQC levy is automatically collected in your premium, providing capped cover (currently up to $300,000 + GST) for land damage and building damage caused by earthquakes or landslides.

Unit Title Insurance rules

If you are purchasing a unit title property (such as an apartment, townhouse, or commercial unit):

**Group Insurance**: The building insurance is arranged collectively by the **Body Corporate** as a single master policy. Individual owners do not arrange separate house insurance.
**Solicitor Certificate**: We collect the Body Corporate Certificate of Insurance from the secretary, confirm that your lender is named on the group policy register, and submit it to the bank.

Note: You must still arrange your own personal contents and liability insurance policy, as these are not covered by the body corporate master policy.

Apartments & Unit Title Insurance

Buying an apartment or townhouse requires verifying that the Body Corporate master insurance policy is current, adequate, and covers the full reinstatement value of the entire building complex.

Banks perform strict checks on body corporate policies. If the building has seismic (earthquake risk) issues or structural building defects (such as cladding problems), the insurer may exclude coverage, blocking bank mortgage approvals.

We review the body corporate disclosure certificates and insurance schedules during your due diligence conditional window to confirm lender compatibility.

Instruct Quay Law for Your Purchase

Ensure your insurance Certificate of Currency and bank mortgagee requirements are coordinated correctly. We provide transparent fee quotes before you make your offer.

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Insurance FAQs

New Zealand home insurance uses the "Sum Insured" model. The insurer does not guarantee to rebuild the house regardless of cost. Instead, you must specify a maximum dollar amount (sum insured) that the policy will pay out to rebuild the home in a total loss. You must ensure this sum insured is accurate (using online calculator tools) to prevent underinsurance, as banks require the sum to cover the cost of a complete rebuild.

If damage occurs before settlement day, the seller is responsible for repairing the house. Under the ADLS contract, if the damage is "un-tenantable" (e.g. renders the home uninhabitable), the buyer can cancel the contract and refund the deposit. If the damage is minor, settlement proceeds, but the price is reduced by the cost of repairing the damage.

Yes. Even though there is no bank lender forcing you to provide a Certificate of Currency, you should still arrange house insurance to start on the day of settlement. Taking possession of a major asset without active insurance cover exposes you to massive capital loss if a fire or natural disaster occurs immediately after settlement.

Discuss Your Residential Transaction

Get in touch with Quay Law to review a Sale and Purchase Agreement, audit a land title, or arrange legal settlement.