This is a common question and since I’m married to a man who has been an insurance agent since he was 18 years old (holy cow!) I’ve got the insight, and a recent example to share.

Just the other day, I was doing a walk through with my buyers and the owner casually mentions their insurance will cease to be in effect Monday at midnight. The only problem, is we’re closing Tuesday late morning (11:30 a.m. and funding will happen a couple hours after that). So, I give a quick call to The Wurzel Agency and this is the scenario they ask us to consider:

Seller’s insurance is no longer in effect Tuesday morning at 12 A.M.
House has a fire Tuesday at 9 A.M.
Who owns the house? The seller.
Who has insurance? The buyer once they own the home
Who owns the house? The seller.
Who is responsible? The seller, who at this point has no home owner’s insurance.

Does the buyer want to close on a home that just burned down? Nope. Not even a little bit.

It is really important to never ever cancel your home owner’s insurance policy until you DO NOT own your home anymore. Good insurance agents will make you provide a copy of the executed settlement statement prior to canceling insurance. The rippling effects of the seller not having insurance through closing is there would be no coverage to repair their home, the seller would have to make repairs out of pocket, and the buyer would not be able to purchase the home.

As a precaution, the buyer drove by the house the morning of closing to make sure it was still standing, and it was. Phew!