Your home is for sale and, thankfully, you have already moved into a new one before the virus outbreak! As a result, your home is sitting empty and unoccupied, and realistically might stay that way for some time. It might be natural for you to want to cancel your insurance policy and simply only carry one policy for your new house. Yet while this is tempting, it might not be the smartest choice. Your mortgage lender probably requires that you have at least some form of insurance on your house at all times, and you could be surprised to learn that your home insurance might actually increase if you’re not living there. Here’s what you need to know about dealing with house insurance when during a move.

1. Check with your mortgage lender

In most states, mortgage lenders are allowed to require that you must have home insurance as part of the terms of your mortgage. This is because when you take out a mortgage, you’re using your home as security on the loan. If something catastrophic should happen to your home — let’s say, for example, that it burns down — your lender will have a property of significantly less value as security if there’s no insurance on the home. If you default on your mortgage at this time, it can be almost impossible for the lender to cover its losses, which is why they insist on home insurance. If you’re waiting on the funds from the sale of your home to repay the mortgage, you’re still bound by the rules of your mortgage and thus will likely need to keep your insurance. 

Keep in mind there are some consumer protections that dictate how much insurance mortgage lenders can require you to purchase. In some states, such as if you’re buying home insurance in Texas, there are laws that prohibit your lender from requiring insurance beyond the actual cost of the dwelling, even if your mortgage agreement exceeds that amount. However, this is still a pricey bill to accumulate, considering home insurance in the aforementioned Texas example increased 1.6% from 2019 to 2020 alone. 

2. Inform your insurance company when you move out

You might think that since you’re not living in your home anymore the cost of insurance should decrease, but in fact, it’s usually the opposite. Insurance companies generally charge more for vacant insurance since there’s a higher risk involved — if anything happens to the house, it could be longer before someone notices. Most insurance policies specify the number of days your property can be vacant before the insurance will no longer cover damages. Check your individual policy to understand the nuances of your situation.

You should keep your insurance company advised of your timeline — and be honest with them, it’ll be quite obvious that your property is vacant if an accident does occur and the insurance inspector comes out to the scene. If anything should happen while the home is vacant and you don’t have the proper insurance coverage, you could be on the hook for the cost of repairs. 

Some insurance companies will offer vacancy insurance as a separate policy, while others could just increase the cost of your current home insurance. Be sure to mention to your insurance company if you have an alarm system or a caretaker checking on the property, as this could result in a slight decrease in your overall cost. 

3. Calculate savings vs. risk

If you don’t have a mortgage on your home, you could be tempted to cancel your insurance once you move to save money. Of course, if you don’t have a mortgage, that likely means a large amount of your personal savings are invested into your home. You do run the risk of leaving one of your largest financial assets unprotected without insurance. Accidents can happen at any time, and the temporary savings you’d get from canceling your insurance might not be enough to cover the cost of repairs — especially in a catastrophic event.

Instead of saving money by canceling your policy altogether, consider ways that you can minimize the cost you’re paying while still keeping your coverage. 

• If you have extra policies, such as flood insurance, you might decide that these are worth the risk of canceling, especially as rates vary significantly depending on how far from the water you are. 
• Try to save money by minimizing any cancelation fees you might incur. You can usually do this by using the same insurance provider for your next house. 
• If the period between when you’re moving out and when you plan to sell the house is quite long, you might consider renting your property, either to one tenant or as a short-term rental. While home insurance on a rental property will certainly be higher than your primary residence, it’ll most likely be lower than insurance on a vacant house. Some rental income could also help defray other costs such as property taxes.

If you’re not legally required to have house insurance, it’s up to you to weigh the risk with the reward. Make sure that a catastrophic accident or weather event that damages your house won’t put you in a financial crisis if you have to pay for the repairs out of pocket.

4. Use closing date as a timeline

Your closing date is the date that the ownership and title, along with the funds, are transferred from the seller to the buyer in a home transaction. As you’re trying to figure out when to cancel your home insurance, use the tentative closing date as your guide, making sure that your insurance policy is active until you are no longer on the title for the property. Even though this seems like a more expensive option, should a worst-case scenario occur, it will actually prove to be a money saver.