What Happens to Homeowners Insurance When Selling a House?

Selling a house involves numerous financial considerations, and understanding the implications for homeowners insurance is an important aspect. Proper management of your insurance policy throughout the sales process ensures continuous protection for your property and helps avoid unexpected costs or coverage gaps.

Coverage During the Sale Process

Your existing homeowners insurance policy remains active and important from the moment your house is listed for sale until the closing date. This policy continues to protect your property against various perils, such as fire, theft, or natural disasters, while you still own the home. Additionally, it provides essential liability coverage for anyone who visits your property, including prospective buyers and real estate agents.

If you move out of your home before the sale is finalized, your property might be considered “vacant” or “unoccupied” by insurance providers, which can significantly alter your coverage. Many standard policies limit or even cancel certain coverages, such as for vandalism or water damage, if a home is unoccupied for a period, often 30 to 60 days. It is crucial to inform your insurance company if the property will be empty for an extended time and inquire about specific vacant home endorsements or policies, as an empty home presents increased risks to insurers.

Coverage for personal belongings can also be affected if you begin removing items from the home. While the dwelling coverage protects the structure, your personal property coverage might have limitations once items are moved out. Maintaining liability coverage is particularly important, as you remain responsible for any incidents on the property until ownership officially transfers, even if you are no longer residing there.

Insurance at Closing and Transfer of Ownership

The seller’s homeowners insurance policy typically ceases to cover the property at the exact time of closing, when the deed is officially transferred to the buyer. This means there should be no gap in coverage for the property, as the buyer’s new policy should become effective simultaneously. It is important to note that a seller’s policy generally cannot be transferred to the new owner.

Buyers are almost always required to secure their own homeowners insurance policy before the closing date, especially if they are financing the purchase with a mortgage. Mortgage lenders mandate this to protect their financial interest in the property. Proof of this new policy, and often the payment of the first year’s premium, is required by the lender and closing agent prior to the transfer of ownership.

At closing, any prepaid insurance premiums by the seller might be prorated, although this is less common for insurance than for other expenses like property taxes. While the buyer’s new insurance policy is their responsibility, the closing agent will ensure that the buyer’s policy is in place and that the initial premium has been paid. The buyer’s new insurance payments are frequently managed through an escrow account by their mortgage lender, where a portion of their monthly mortgage payment is allocated to cover future insurance premiums.

Handling Your Existing Policy

After the sale has been completed, the seller needs to formally cancel their old homeowners insurance policy. This process typically involves contacting your insurance provider directly, providing the exact closing date, and requesting cancellation effective on that date. It is generally advisable to wait until after the closing is officially finalized to initiate the cancellation, ensuring continuous coverage until ownership passes.

Sellers who paid premiums in advance for a period extending beyond the closing date are usually entitled to a prorated refund for the unused portion of their policy. Most major insurance companies calculate this refund on a prorated basis, meaning you receive money back based on the number of days left on the policy term. You should inquire about and confirm the process for receiving this refund from your insurer, which may take a few weeks to process.

It is prudent to obtain written confirmation of the policy cancellation from your insurance company for your records. If you are moving to a new property, you will need to arrange for new homeowners insurance for your new residence. An existing policy cannot be transferred to a different property, requiring you to secure a new policy tailored to your new home’s specific characteristics and risks.