Selling Your Home With Homeowner's Insurance

by c21commonweath_ldowling 9. October 2019 17:06

Homeowner’s insurance is an expense you may wish to pass off to a buyer as soon as possible, but getting rid of your insurance too soon can have detrimental effects. Let’s review the reasons why having homeowner’s insurance is so important and why you may want to hold onto it until your title has been transferred to the new owner. After all, a tree could fall on your house a day before closing, only to have all parties cancel their contracts—stranger things have been known to happen!

What Is Homeowner’s Insurance?

Homeowner’s insurance is a type of property insurance that protects your home and the things inside your home from damage. It can also cover accidents and bodily harm inflicted inside the house or on the property. Homeowner’s insurance is required in order to obtain a mortgage from most banks or lenders. Individuals can purchase homeowner’s insurance from the lending bank, in which case payments can be included in the monthly mortgage payments, or from an insurance provider of their choice. 

The amount of coverage a homeowner has depends on the plan’s liability limit, which is usually set around $100,000. Acts of war or acts of God (earthquakes or floods, for example) aren’t usually covered in basic homeowner’s insurance plans, so people living in areas prone to these events are wise to purchase special coverage. Most homeowner’s insurance policies cover damage done by hurricanes and tornadoes. 

Selling Your Home with Homeowner’s Insurance

While it’s not necessary to have homeowner’s insurance while selling your home, it’s smart to hold onto it until the new buyers take financial ownership of the property. Here’s why.

Financial Responsibility and Home Offers 

You never know when an unexpected accident will occur, due to extreme weather or other circumstances. If something happens to your home before you close the deal, you may be left with a huge financial burden, and a buyer may retract their offer if they see the property has suffered major damage.

Protect People from Accidents on the Premises

Homeowner’s insurance includes personal liability coverage, which includes personal injuries to others. In the unlikely event an individual is injured on your property during a showing, your homeowner’s insurance will help cover any medical bills. According to the Insurance Services Office (ISO), wind and hail, freezing water damage, and fire and lightning damage are much more likely to cause property damage—personal and bodily injury are rare, comprising only about 3% of total home insurance losses.

When Should You Transfer Your Policy?

All things considered, it’s best to transfer your homeowner’s insurance policy to your new home only after the closing is complete and your title company sends the funds to close the loan on your old home. You may end up paying for two homeowner’s insurance policies at once while purchasing your new home and selling your old one simultaneously. 

Contact your mortgage company one to three days after closing to notify them of your move. If you’ve prepaid your homeowner’s insurance and property taxes, and your insurance has been escrowed, you won’t need to cancel your current plan. Instead, your lender will send you a refund check.

Better Safe Than Sorry

While it might seem like a hassle to sort through homeowner’s insurance during a sale or move, it’s a good idea to safeguard yourself from potential liabilities that could cost you most of your savings. You’ll be thankful to have a policy that covers expensive damages when you need your home to be in tip-top shape.