When to Cancel Home Insurance When Selling Your House

Managing your home insurance policy during a home sale is a common concern. Proper timing and adherence to established procedures are important to avoid coverage gaps or unnecessary expenses. Careful attention is needed to ensure protection until ownership transfers to the buyer.

Maintaining Coverage During Sale

Maintaining your home insurance policy is important from the moment you decide to sell your home until the official closing date. As the legal owner, you remain financially responsible for the property until the transfer of ownership is complete. This means any damage from natural disasters, vandalism, or theft that occurs before closing would be your liability.

If an accident occurs on the property, such as an injury to a prospective buyer or agent during a showing, your personal liability coverage is important. Lenders require continuous insurance coverage on a mortgaged property until the loan is fully paid off at closing. Canceling your policy too early could lead to significant out-of-pocket costs for repairs or legal liabilities, and may even breach your mortgage agreement.

Determining the Cancellation Date

The time to cancel your home insurance policy is the official closing date of the home sale. At closing, the legal ownership of the property transfers from you, the seller, to the buyer.

The buyer’s new homeowners insurance policy takes effect on this same day, ensuring continuous coverage. It is important to coordinate the cancellation date with the closing date to avoid coverage gaps or unnecessary overlap in premiums. Your policy does not automatically cancel when the house sells, making your active involvement necessary. You will no longer have an insurable interest in the property once the sale is finalized.

Steps for Cancellation and Refunds

To cancel your home insurance policy, contact your insurance provider directly after the sale has officially closed. You will need to provide information, including your policy number, the address of the sold home, and the closing date. Some insurers may require written notification or a cancellation form to process your request.

Home insurance premiums are paid in advance, either monthly or annually. If you cancel your policy before the end of the term, you are entitled to a prorated refund for any unused premium. This means the insurer calculates the amount owed back to you based on the remaining days of your policy term. While most insurers offer prorated refunds, some might apply a “short rate” cancellation fee, which is a small percentage of the annual premium.

If your insurance payments were managed through an escrow account by your mortgage lender, you should also notify the lender of the sale and cancellation. The lender will adjust the escrow account and ensure any excess funds are returned to you. Always request written confirmation of your policy cancellation and keep records of all communications and refund details for your financial documentation.