REALTORS® are often shocked to learn there are scenarios when homeowners insurance does not cover a loss. Here are examples of those scenarios and what your clients should know.

Leasebacks between buyers and sellers

Once sellers become tenants of the buyers, the sellers’ homeowners insurance policy will not cover damages or loss since the sellers no longer own the home. And although buyers typically purchase a homeowners insurance policy for their new home, a coverage gap for the leaseback period may remain because homeowners insurance only insures the home in which the homeowners reside.

If the leaseback is beyond the insurance company’s allowable period for coverage under a homeowners policy, it’s a good idea for buyers to carry a dwelling fire policy.

A dwelling fire policy sounds like it’s limited to fire-related losses, but it is actually an insurance policy homeowners can buy that covers their rental property.

Rather than discuss with your clients what type of policy they need, you can advise them to contact their insurance agent to make sure they have the appropriate policy in place.

When a primary residence becomes a rental

When buyers purchase a new home and lease out their existing home, many buyers will keep their existing homeowners policy in force and assume it will cover losses. But because the owners are now leasing out the home, the homeowners policy will not provide coverage, as they no longer live in the home. Homeowners should instead purchase a dwelling fire policy for this situation.

Why renters need insurance

It’s a good idea for landlords to require renters to carry renters insurance with at least $300,000 in liability insurance. This coverage could apply if a third party gets injured at the home, bitten by a dog, drowns in a pool, slips on a step, and so forth. If the tenant doesn’t carry insurance, the landlord and property manager could be on the hook for injuries that happen. Most renters insurance policies will cover the renters’ contents as well as temporary living if they are forced from the home due to a covered claim