Why is the offer subject to obtaining insurance?

In British Columbia, it is not uncommon to find an insurance clause in the Contract of Purchase and Sale: "This offer is subject to the Buyer obtaining approval for fire/property insurance, on terms and at rates satisfactory to the Buyer, by (date)." The clause is inserted as a reminder that the Buyer will need to purchase insurance to insure the property as of 12:01am on Completion Day (the day the Buyer pays for the property). Arranging insurance early prevents trouble later. The "trouble" can be with the Buyer or with the actual property. Without insurance, a mortgage company will not provide mortgage funds which may put the Buyer in a position of being unable to proceed. Insurance may be declined for a Buyer with a bad claim history. It may also be declined on properties even if the property is currently insured. Common flags for properties include 60-amp electrical service, galvanized plumbing, knob and tube distribution wiring or a wood stove/fireplace insert that has not passed inspection.

 On strata properties, the Buyer needs to be aware of the strata deductibles and ensure that the Buyer's policy will cover them. For example, the water deductible increases dramatically on buildings with a high history of claims. What may have started out as a $5000 deductible quickly jumps to $25,000 or higher. A Buyer may need to buy additional insurance to cover the deductible which would be charged back to the unit if the unit was the cause of the water leak (think overflowing bathtub, washer or dishwasher) which damaged the common property or other suites. Strata owners also need to insure the upgrades to their units. The strata corporation policy only covers the original version of the unit.

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