Homeowners insurance tends to be an expense that sellers are all too happy to hand off to buyers as fast as possible—but canceling it too early can expose you to significant risk and even the successful sale of your home.
Homeowners Insurance
Approximately 85% of homeowners have home insurance policies, with the most common type being HO-3 (about 78%), according to data from the National Association of Insurance Commissioners (NAIC). This is broad coverage on personal property that insures against a number of perils such as fire, windstorms, explosions, theft, and smoke.
All policies cover a home’s structure, fixtures, and built-in appliances; most policies also cover your belongings and personal liability from injuries or damage.
Policyholders often need additional coverages, such as for flood or earthquake-related damages, living expenses during home repairs, and losses from sewer or drain backup. (The Insurance Information Institute, a research organization founded in 1959 and based in New York City, has a video that explains what’s typically covered and what’s not, such as damage from pests.)
The average annual cost of homeowners insurance in the United States ranges from $781-3,383, according to a 2022 analysis of sample policies in each state by the personal finance company ValuePenguin.
Do you Need Homeowners Insurance to Sell a Home?
Homeowners policies can include personal liability coverage, which handles financial losses from property damage and personal injuries to others, if a homeowner is found legally responsible. It also can include medical bills for people hurt on the property or by the homeowner’s pets.
According to the Insurance Services Office (ISO), the most frequent causes of property damage on homeowners insurance policies are wind and hail (33%), freezing and water damage (about 30%), fire and lightning (about 27%), property damage including mischief and vandalism (about 6%), and theft (about 2%). Bodily injury and property damage comprise only about 3% of liability damages as a percent of total homeowners insurance losses.
Insurance Companies Offer Different Policies for Vacant Properties
A home may be vacated prior to closing for any number of reasons—perhaps you wish to avoid the inconvenience of showing a home your are living in and elect to buy your replacement property prior to selling your current home, or a rental property where you no longer have tenants.
A vacant house is at greater risk to a range of insurance related perils, including vandalism, theft, fire and arson. Furthermore, if a problem such as a plumbing leak occurs, there isn’t anyone present to notice it, which means the damage can become significant before the issue is detected. Insuring a Therefore vacant homes pose a much greater risk for an insurance company than one that is occupied.
Insurers generally require homeowners carry vacant home insurance when they plan to vacate the home well in advance of closing. These policies carry significantly higher premiums than coverage for an occupied dwelling—roughly between 1.5 and three times as much as standard insurance—and can be more restrictive than regular insurance, Insurance.com notes. That means covering standard perils such as fire and wind, but not water damage from frozen pipes or vandalism.
It may be possible to add vacant home insurance to an existing policy, or it may be necessary to purchase a separate policy. The amount of time a house must be empty before it is officially considered “vacant” can vary from state to state, and insurer to insurer.
If you have already moved out and the house is sitting empty, your current policy may no longer apply. If you plan to move out before you sell the house, you may need to change your coverage.
As one might imagine, if something happens and you don’t have the correct type of insurance, your loss may not be covered. Some carriers automatically deny a claim on a standard policy if the property was vacant at the time of the loss. Some insurers will cancel a policy on a house that sits vacant.
When Should you Cancel or Transfer your Homeowners Insurance Policy?
As a seller, you might prepay your homeowner’s insurance and property taxes monthly as part of your mortgage payment. Until the mortgage is paid off completely, the prepaid insurance and taxes go into an escrow account.
When you sell the house, your coverage is in effect until the title company sends in the payoff, that is the funds to close the loan. If your homeowners insurance is escrowed, your lender will issue a refund check for any prepayments on the insurance (and taxes) remaining in your account. This payment is usually remitted within about 30 days of your closing.
If your insurance has been escrowed, you won’t need to cancel anything. If your insurance is not escrowed, and you pay the bill directly, you need to make sure that the closing has been processed and funded before canceling or transferring your insurance policy to a new home. However, depending on your buyer’s financing, you should wait one to three days after closing to do so.
A buyer with a bridge loan, for instance—a loan that covers a gap between the purchase of one property and the sale of another—has a three-day right of rescission, meaning he or she under the Truth in Lending Act can cancel the loan within three days of closing, no questions asked.
Homeowners Insurance Explained
How to Choose the Right Homeowners Insurance Deductible
If you, or someone you know is considering Buying of Selling a Home in Columbus and Central Ohio please give us a call to discuss how we can help!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
