How is my homeowner’s insurance affected after I sell?

So you’ve decided to sell your home, but you’re living there for a while after selling. You may have 90 days to stay due to special arrangements with buyers. Or you have decided to sell to someone who wants to sell the property and you no longer want to be responsible for the maintenance of the house or other costs (such as property taxes or maintenance). Or one of the common cases where we see old parents selling/transferring property to a child and the child allows the parent to live in the house until death.

Whatever the reason, chances are good that your homeowner’s insurance policy will not remain in effect. Why? Because homeowner’s insurance coverage is for owner-occupied homes and when you sell the home, you no longer own it.

Here’s another way to think about it……in insurance, the concept of uninsured interest often tells us how much we need to insure something. From the International Risk Management Institute (IRMI), here is a basic definition of interest in insurance: the insured’s interest in the insured value, including any legal or financial relationship. An insurable interest is often derived from property rights, contractual rights, and potential legal liabilities.

Ahhhhhh….. so once you sell, you no longer own the property (AKA they don’t own it), so you have no interest. And if you don’t have an owner, you can’t use the owner policy.

So how does insurance work when I sell?

When the home is sold, the homeowner will be responsible for insuring the home through a fire policy (AKA Landlord). Fire policies are designed for homes that are not owned by the owner, such as homes that are rented out to others.

Your existing home owner’s insurance will be canceled and renter’s insurance will be issued to cover your property and liabilities. You will need to specify the amount of money needed, along with other special items that must be covered, such as jewelry or guns, because these are limited in the lender’s policy. Your agent or insurance company is happy to walk you through this (information, idea).

Are there situations where existing homeowner’s insurance can still be valid?

The last example in the first paragraph is sometimes the exception to the rule. When a parent sells or sells property to a child, some insurance companies MAY allow the policy to remain as is, with a small increase. For example, the parents are the ones who were called the insured because they OWN the property, i.e., they had an insurable interest. Now that the child owns the property, it will be added as additional Property and Liability Insurance. Now he has an interest in the insurance and is entitled to the protection of the policy. This is how it is achieved.

These are situations that should be carefully discussed with your provider. Not all carriers allow this and may require a copy of the legal agreement (often called a Life Estate) before they can accept it. They are usually willing to consider it because a) it is an existing insured who still lives in the same house, b) a close family relationship and c) the length of time the insured has been with the company. Ultimately, everyone who owns property should be properly protected. Again, it needs to be discussed with the insurance company/provider.

If you are selling your home and want to live in it after the sale (either short or long term), contact us to discuss your homeowner’s insurance options. Fill out the form below or call (937) 592-4871 – we’re here to help!