Protect Your Deposit: Why a Pre-Purchase Insurance Clause Is Essential in NZ Property Deals

Consequence? No insurance = no mortgage. You can lose your deposit. Banks refuse loans without a policy.

Seen this happen? Yes. Buyers caught out. It costs thousands. They had no clause to fall back on.

What is a pre‑purchase insurance clause?

It’s simple. You add one line – or a few – into your New Zealand Sale and Purchase Agreement:

It may look something like this, but it’s best to get this from a New Zealand Lawyer who is supporting you with your property purchase.  “This agreement is conditional on the Buyer obtaining, before [date], a written offer of insurance covering the property on terms acceptable to the Buyer. If the offer isn’t obtained, the Buyer may cancel, and the deposit will be refunded.”

Key parts:

• Set a clear
• Require a written offer.
• Define the conditions you require.

Why it matters

• You protect your
• You get a chance to walk away.
• You avoid last-minute panic and possible financial loss.
• You stay in control.

How to draft it properly

• Use active, simple words.
• Tie the date to your finance deadline.
• Include major perils: flood, fire, storm, quake.
• Avoid vague phrases like “usual terms”.
• Get your property solicitor to support you with the drafting of this clause to be included in the contract before you sign it.

What you need to check first

1. Talk to your insurance broker early
   • Ask about premiums, exclusions
   • Understand if the property is risky
2. Check council zoning
   • Flood maps, coastal hazard zones, rezoning flags
3. Order your LIM
   • It shows zoning changes or hazard overlays
4. Understand bank requirements
   • Some lenders need full rebuild cover

What happens if it fails.

You cancel the deal. Deposit comes back. The clause gives you that right.

No clause? You’re stuck. You may pay interest, daily penalties, and even legal bills. Worst of all, lose your deposit.

Case study: Coastal section

• Buyers picked a beachfront section recently rezoned.
• Broker flagged higher flood risk and premiums.
• They asked for cover, but insurer offered limited policy.
• Because of the clause, they chose to walk away.
• They kept their deposit and avoided a bad deal.

Case study: Inland home

• No hazard issues
• Broker confirmed cover at standard rate
• Buyers skipped the clause
• Settlement went as they expected. No drama.

What NZ property sellers and real estate agents should know

• Buyers will ask for this clause.
• Share all hazard info upfront.
• Help buyers sort insurance early.
• It improves trust and smooths the sale.

FAQs

1. Can this clause delay my settlement?
   It shouldn’t if well-timed. Set the insurance deadline just before your finance deadline. That gives you both time and avoids delay.
2. What if property insurance is available but too costly?
   That’s covered. “Terms acceptable to the Buyer” means price matters too. If premiums are far above the estimate, you can withdraw.

You want your purchase to be smooth. You want your deposit to be safe. That clause is small, but powerful.

Add it to your Sale and Property Agreement. Get your insurance advisor’s (used to be called a broker) input. Ask your lawyer to write in clear, tight wording.

Ready to make your next property move with confidence? Chat to a conveyancer at Quay Law today and ensure your purchase is fully protected.