In a Bind Over Home Insurance?

How to secure coverage during wildfire season

Most buyers won't realize there's a difference between an insurance company giving them a quote for an insurance policy and an insurance company binding an insurance policy. But as a REALTOR®, you certainly should.

When an insurance provider “binds” an insurance policy it means they've issued the policy and coverage will come into effect on the agreed-upon date. A quote is just an insurance provider's estimate of how much a certain policy will cost. It doesn't mean the insurer will ultimately bind the policy.

During wildfire season, many insurance providers place restrictions on binding insurance policies on properties within a certain radius—commonly 50 km—of an active and uncontained wildfire. If insurers won't bind policies in the area where your client is purchasing, you and your client could find yourselves in a real "bind"!

If your client doesn't have insurance in place by the completion date, the mortgage company won't fund their mortgage. This could result in a collapsed transaction, putting your client in breach of contract and their deposit at risk. Follow these important steps to protect your client if they're buying a home during wildfire season:

• Get a quote early.
  Your client should get quotes early in the sales process, whether the home they're looking to buy is near an active wildfire or not. This gives them the opportunity to shop around if some insurance providers won't offer quotes due to nearby wildfires. If they can't find a provider who will, they may need to push their closing date.
• Understand if the policy is binding.
  Remember—a quote is just a quote! Even if your client gets a quote early, it's not a guarantee the provider will bind the policy, as a wildfire could crop up between the time of the quote and the time of binding. When your client receives their quote, they should ask how the provider handles this type of situation. Some providers may still bind the policy if there was offer and acceptance of a quote before the wildfire became active.
• Include fire/property insurance clause in your client's offer.
  Many REALTORS® include a clause in an offer noting that the offer is subject to the property and buyer qualifying for insurance coverage. You might also suggest your client include a clause extending the completion date if insurance is unavailable due to a nearby wildfire.
  
  As always, advise your clients to seek legal advice regarding the addition of clauses to the Contract of Purchase and Sale.
• Be aware of active wildfires in the area.
  You can do so by regularly checking the BC Government's Current Wildfire Activity page here.

Finally, if you're working with a client who's selling their home, encourage them to wait to cancel their home insurance until after closing. This will ensure they're still protected if the buyer is unsuccessful in obtaining insurance and the sale is delayed or collapses.

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