I’m staying in my home after I sell it. What do I need to do with my homeowners insurance?
So you’ve decided to sell your home, but are staying there for a period of time after the sale. Perhaps you have 90 day occupancy due to special arrangements with the buyers. Or you’ve decided to sell to someone else who wants an investment property and you no longer want to be responsible for the home’s maintenance or other costs (such as property tax or repairs). Or one of the most common we see- elderly parents selling/transferring a property to a child and the child allowing the parent to stay in the house until death.
Regardless of the reason, the chances are good that your existing homeowners insurance policy cannot stay in force. Why? Because homeowners insurance policies are designed for owner-occupied homes and when you sell the home, you no longer own it.
Here’s an additional way to think about it……in insurance, the concept of insurable interest often tells us how we need to insure something. From the International Risk Management Institute (IRMI), here’s a great definition of insurable interest: an interest by the insured person in the value of the subject of insurance, including any legal or financial relationship. Insurable interest usually results from property rights, contract rights, and potential legal liability.
Ahhhhhh….. so once you sell, you no longer have property rights (AKA don’t own it), and therefore no insurable interest. And when you don’t own, you can’t use an owner-occupied policy.
So how does the insurance work after I sell?
Once the property is sold, the new property owner would be responsible for insuring the property via a dwelling fire (AKA Landlord) policy. Dwelling fire policies are designed for non-owner occupied homes, such as homes rented to others.
Your existing homeowners insurance would be cancelled and a renters (tenant) insurance policy issued to cover your personal possessions and personal liability. You would need to specify the dollar amount of coverage needed, along with any special items to be covered, such as jewelry or firearms, as these are limited within the renters policy. Your agent or insurance company is happy to walk through this process with you (hint, hint).
Are there any situations where the existing homeowners insurance might be able to stay in force?
The last example in the first paragraph is sometimes the exception to the rule. When a parent sells or deeds the property to a child, some insurance companies MAY allow the policy to stay as is, with a few additions. For example, the parents were the named insureds because they OWNED the property, i.e. had the insurable interest. Now that the child owns the property, he or she would be added as an Additional Insured for the property and liability coverage. They now have insurable interest and are entitled to receive the protection of the policy. This is how it’s accomplished.
This is a situation that must be carefully discussed with your agent. Not all carriers allow this and may even require a copy of the legal agreement (often called a Life Estate arrangement) before they agree. They are often willing to consider because a) it’s an existing insured still occupying the same home, b) the close family relationship and c) length of time insured with that company. At the end of the day, whoever owns the property must be protected properly. Again, it requires a conversation with your insurance company/agent.
