So you’ve decided to sell your home, but are staying there for a while after the sale. Maybe you have 90 days occupancy due to special agreements with the buyers. Or you have 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 sell/transfer a property to a child and the child lets the parent stay in the house until death.
Regardless of the reason, there is a good chance that your existing home insurance cannot continue to apply. Why? Because home insurance policies are designed for owner-occupied homes and when you sell the home, you no longer own it.
Here̵7;s another way to think about it……in insurance, the term insurable interest often tells us how we need to insure something. From the International Risk Management Institute (IRMI), here is an excellent definition of insurable interest: an interest of the insured person in the value of the insured object, including any legal or financial relationship. Insurable interest usually arises from property rights, contractual rights and potential legal liability.
Ahhhhhh….. so when you sell you no longer have title (AKA don’t own it), and therefore no insurable interest. And when you don’t own, you can’t use an owner’s 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 residential fire (AKA Landlord) policy. Residential fire policies are designed for homes that are not owned by owners, such as homes that are rented out to others.
Your existing home owner’s policy would be canceled and a renter’s policy would be issued to cover your personal belongings and personal liability. You would need to itemize the coverage needed in dollars, along with any special items to be covered, such as jewelry or firearms, as these are limited within the renter’s policy. Your agent or insurance company will be happy to go through this process with you (hint, hint).
Are there any situations where the existing home insurance can continue to apply?
The last example in the first paragraph is sometimes the exception to the rule. When a parent sells or transfers the property to a child, some insurance companies MAY allow the policy to remain as is, with some additions. For example, the parents were the named insured because they OWNED the property, thus 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 an insurable interest and are entitled to be protected by the insurance. This is how it works.
This is a situation that needs to be discussed carefully 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 agreeing to it. They are often willing to consider because a) it is an existing insured who still lives in the same home, b) the close family relationship and c) the length of time insured with that company. Ultimately, whoever owns the property needs to be properly protected. Again, this requires a conversation with your insurance company/agent.