In arranging a property insurance, a purchaser (homeowner as well) often makes the following mistakes:
- Using the possession date (instead of completion date) as the starting date for the insurance policy. This mistake exposes the home owner a great danger. For example, if the possession date is Jan 15, and the completion date is Jan 14, the fire burns down the house at 9 am Jan 14. The purchase become the home owner at 12:01 am, Jan 14, and the insurance policy starts from 12:01 am Jan 15. therefore, the home owner does not get compensated from the insurance policy.
- While having a mortgage on the property, the insurance policy does not state that the “First Loss Payable to” as the lender. This happens often when the home owner switches to a different insurance company. A prudent insurance broker would ask for the details about the mortgage and the lender, but not always though. When you borrow money from a bank or a private lender, the mortgagee (the bank or the private lender) should be paid first in case of fire insurance claim.
- Ignore the inclusion of “IBC Standard Mortgage Clause”. the IBC Standard Mortgage Clause guarantees the payment to the mortgagee (lender) even if the damages to the property were the result of the breaches of insurance conditions by the home owner.