With the slew of tasks involved in selling a house, handling its homeowners insurance probably isn’t at the top of your to-do list -- and might not even be on the list at all. But overlooking the insurance implications of a home sale risks leaving your property and possessions vulnerable.
Consider the potential risks. The process of changing residences can involve leaving your home (perhaps before it’s even sold), juggling the insurance logistics of your new and old homes and moving your possessions. A wrong insurance move at any of those stages could be costly.
These five key points will help you navigate the insurance implications of selling a property and moving to a new one.
Keep the insurance on your old home until the closing
Don’t let the emotional relief of reaching agreement with a new buyer for your home prompt confusion about when your obligations to the property end. Simply put, you remain the owner until the sale closes, and so are responsible until then for any damage that may occur.
It’s possible to sell a home without homeowners insurance, especially if you own it outright and so have no obligation to the mortgage lender to keep it insured. But “selling without homeowners’ insurance isn’t a great idea,” advises realtor Century 21. “If a hailstorm or tornado does strike just before closing, it could destroy the value of your home and torpedo your home sale. It’s an unreasonable gamble to put an asset worth hundreds of thousands of dollars at risk for the sake of saving a few hundred over the short term.”
Instead, “keep your homeowners insurance in place until the closing is completely finished," says Ken Gregg, CEO of Orion180, an insurtech platform. Then, he says, you can reach out to the insurer or your agent with documentation of the sale, including its date, and a request to cancel the coverage. That, he adds, “will be sufficient to cancel your policy."
Plan to shop around -- early -- for insurance on your new home
You can’t simply transfer your current insurance policy to your next home, appealing as that is in its simplicity. Nor can the existing policy on your home be transferred to the new owner.
Rather, every home and its occupants present a differing risk to the insurer, and require a new policy. You can probably choose to retain the same company, assuming it insures properties in your new city or neighborhood (not every company insures in every location).
Staying with the same insurer might simplify the paperwork for your new policy, but it hardly assures you of getting the best rate. That’s true even if you shopped around for coverage on your old home and chose the policy with the lowest rate. That insurer may not necessarily offer the best price on your new residence, especially given the rise of new “insurtech” companies such as Lemonade that are now challenging the big names in home insurance.
Instead, plan to start the shopping process early enough to get at least three quotes, either directly with the insurance companies or by using an independent insurance broker that sells policies from multiple companies. (Those can be found locally or online.)
Keep in mind that, assuming you’re financing your new home, insurance will be required before the funds are released. “The mortgage lender will require you to purchase the first year policy during the process, so that at closing you are insured," says Gregg.
But don’t procrastinate, even if you’re paying cash for your new abode. "If no financing is necessary, you should go to your [insurance] agent a few weeks before the projected closing, to give them all the information needed to get quotes and purchase the new policy with an effective date on the closing of the new home.”
You're covered for home showings and inspections
A home that's being sold typically endures a parade of unaccustomed visitors, from realtors and home inspectors to would-be buyers.
Fortunately, your regular homeowners insurance covers these visits. In case of any mishap, says Angela Orbann, Vice-President of Property and Personal Insurance at Travelers, "the liability coverage on the existing home policy would apply for any injuries to others that the homeowner might be found legally responsible for."
If the home will be empty before it sells, let the insurer know
To insurance companies, vacant homes are risky homes. No occupants are around to notice damage from water leaks or fallen trees, and the property could attract vandals and squatters. (Those factors are key reasons that second homes in the country often cost more to insure than urban or suburban residences.)
"If you are able to stay in the home until it sells, you should," says Gregg. "Insurers are likely to cancel the policy if the home is vacant or to deny a claim if it is determined the loss occurred while the home was unoccupied."
Of course, you may have little choice but to vacate your old home before it sells, and perhaps even take your possessions with you. It’s best, Orbann says, to let the insurance company know in advance of such a vacancy.
Brief temporary vacancies may be deemed acceptable, he says, with the insurer agreeing to extend the current, regular home insurance until the home is sold. But if a longer unoccupied period is planned, or the property simply takes a long time to sell, special measures may be required.
"Generally, homes that are vacant for an extended amount of time will have coverage limitations or be ineligible for standard homeowners coverage," says Orbann.
Some insurers will not insure empty homes at all, which is all the more reason to contact your insurer early if you anticipate a vacancy. However, a number of companies (including Farmers and American Family) offer special coverage known as “vacant and unoccupied insurance.” For reason of the higher risk posed by an unoccupied property, this coverage is more expensive than regular insurance, often significantly so.
Make sure you’re covered for the move
You’ve dutifully insured your new home and kept the insurance on your old one until its sale closes. That covers your possessions should any of them be damaged in the move from one home to the other, right?
Alas, possibly not. According to the Insurance Information Institute, if you hire professional movers, your homeowners or renters insurance covers your belongings “while they’re at your residence, in transit and in storage facilities, but will not pay for any damage done to personal property while being handled by the movers—when packing or physically moving the items.”
Coverage may or may not be better if you move your possessions yourself. State Farm notes that you may be better covered (albeit at a cost) if you rent a vehicle, such as a truck, rather than using your own vehicle yourself. Rental companies, the insurer notes, sell “insurance that not only protects the rental vehicle, but also the driver, passengers, and your cargo, depending on the type of coverage you choose.”
In short, this is another area of insurance to plan in advance. "Talk to your insurance agent to make sure that you have coverage for your belongings while they’re in transit. They can also help you explore specialty insurance policies to specifically cover your move, if needed,” says Orbann. Such policies include not only those from truck-rental firms but movers and companies that sell third-party coverage for your possessions during moves.