Who's liable if the property is damaged before settlement — and when to insure

There's a gap in every property purchase that most buyers never think about — the weeks between signing the contract and settling. If the house burns, floods or is vandalised during that window, someone has to carry the loss, and the law's word for who carries it is "risk". The uncomfortable truth is that the moment risk shifts from the seller to you is not the same in every state, and in one of them it happens far earlier than almost anyone expects. This guide frames who bears the risk before settlement, why you can never safely rely on the seller's insurance, and what cover to arrange and when. The precise rules live in your state's explainer below; this is the map to the danger you can't see.

Key takeaways

• Risk passes at different times by state: in Queensland it shifts to the buyer very early; in NSW and Victoria the seller generally carries it until settlement.
• Never rely on the seller's insurance: they may not hold cover, may have cancelled it, or the loss may fall outside their policy — and you can still be bound to complete.
• Insure from the moment you sign: the consistent advice across all states is to arrange building, contents and public liability cover immediately, before the property is ever at your risk.
• Your lender will insist on it: building insurance is typically required before the lender releases settlement funds.
• Inspect before you're bound: you take the property in its existing condition, subject to fair wear and tear — building and pest reports protect you before signing, not after.

1. The gap between contract and settlement

Once a contract is signed, weeks usually pass before the money changes hands and ownership transfers. During that gap the property physically exists in a kind of limbo — sold on paper, but not yet handed over — and if it's damaged, the loss lands on whoever bears the risk at that moment. The critical point buyers miss is that this moment isn't universal. Get it wrong and you could find yourself legally required to complete the purchase of a property that's worth far less than the day you signed, with no insurer to turn to. Everything else in this guide flows from that single fact: know when risk becomes yours, and make sure you're insured before it does. The risk and insurance overview explains the concept in full.

2. The state-by-state picture

When the risk of damage to the property passes from the seller to the buyer differs by state — it shifts to the buyer notably earlier in Queensland, while in NSW and Victoria the seller generally carries it through to settlement. Because that timing is easy to misjudge, the safe move is the same everywhere: arrange your cover from the day you sign, rather than waiting for the moment risk technically becomes yours. See the Queensland explainer and the NSW explainer for each state's specifics.

When risk passes, by state

3. Why you can't lean on the seller's cover

Even where the seller clearly bears risk until settlement, treating their insurance as your safety net is a mistake. The seller may never have taken out cover, may have cancelled it, the specific event may fall outside their policy's terms, or some other factor may block you from recovering under it. And here's the trap: if their insurer declines, you can still be legally bound to complete the purchase. That's why the professional advice is consistent across every state — arrange your own cover the moment you enter the contract, before the property is at your risk, so there's never a window where you're exposed and uninsured.

4. What to arrange, and the questions to ask

For a standalone house you'll generally want building insurance (usually required by your lender before it releases settlement funds), plus contents and public liability cover. For strata or body-corporate properties the owners corporation typically insures the building structure and common areas, so you usually only need to cover your lot's interior, your contents and public liability inside your own space — with townhouses and low-rise developments, the split depends on whether the buildings share common walls. Beyond insurance, remember that you take the property as it stands, so your real protection against condition problems is to inspect thoroughly and commission building and pest reports before you're bound. It's also the stage to check for title issues like easements, which can quietly restrict how you use or develop the land.

• When does risk pass in my state — and is my cover in place before then?
• Is this a standalone or strata property, and what does the body corporate already insure?
• Does my lender require proof of building insurance before releasing funds?
• Have I inspected and commissioned building and pest reports before signing, not after?
• Are there easements or other title restrictions I need to understand before I commit?