A home insurance cover note is a form of temporary insurance. Cover notes used to be common and were offered by most insurance companies when you applied for a home insurance policy. The cover note meant that you were covered by this temporary policy until you were issued with a full policy by the insurer. Our research suggests that policy owners sometimes used the period of the cover note to shop around for a better deal and often this meant that the provider of the cover note missed out on the full policy and premium.
Recently we were informed by real estate agents that insurance companies are not offering cover notes and that trying to obtain a cover note prior to settlement by a purchaser was no longer the norm. Rather it seems that cover notes have been replaced by a cooling-off period when you take out a home insurance policy. The cooling-off period means the purchaser of the policy can cancel with a full refund of their premium within a specified time frame.
We contacted four insurers and one insurance broker to confirm the latest position of suppliers. All insurers stated that they do not issue cover notes but rather provide a full policy to the client with the client being charged full payment for that policy with the opportunity to cool off up to 21 days following payment. Others provide the same cooling off period of 21 days but additionally allow the client 14 days to make the payment. This effectively provides them with 5 weeks from policy issue to potential cancelation because the 21-day cooling-off period begins when payment has been made.
The Contracts that are mostly used in SA state that the property is at the risk of the buyer from the signing of the Contract. This means that if the property is damaged between the contract date and settlement, the purchaser cannot pull out of the contract and must buy the damaged property, with no reduction in price and likely with their Insurer covering the repairs for the damage. An exception to this is if the property is damaged by the seller on purpose or by them not taking action to stop the damage.
It is also important for a buyer to be insured for public liability in case a tenant or occupant of the property is injured between the contract date and settlement. Even though the seller will usually still have an insurance policy in place until settlement, we strongly advise that the purchaser take out insurance so that they can make a claim in the event that something goes wrong.
In fact, our conveyancers advise all of our purchaser clients to take out cover immediately they sign a contract to purchase a property – even before cooling off has expired in the case of a private treaty sale. With the very generous cooling off provisions there is simply no reason not to.