The Closing Day Trap: Why Sellers Shouldn’t Cancel Their Property Insurance Too Early
As a real estate lawyer, I regularly encounter situations that add unnecessary stress to what is
already a highly anxious time for home sellers. One of the most common—and potentially
costly—mistakes I see involves property insurance.
Many sellers inform their insurance company well in advance that they are selling their property
and instruct them to cancel coverage on the scheduled closing date. While this works perfectly
if the transaction goes exactly to plan, real estate closings do not always happen on schedule.
Transactions are frequently extended, or in the worst-case scenario, terminated completely.
Here is why canceling your insurance prematurely can turn a delayed closing into an absolute
nightmare.
The 4:30 PM Scramble
Imagine this: It is late in the afternoon on closing day, and you find out the buyer needs an
extension. Suddenly, you realize your homeowner’s insurance is set to expire today. With
everything else you have to deal with, you are now scrambling just before 5:00 PM to ensure
your property remains covered.
This leads to several high-stress variables:
● Unavailable Brokers: Your insurance broker may have already left for the day or might not
respond right away.
● Refusal to Extend: If the transaction has been extended multiple times, your insurance
company might simply refuse to provide coverage for “just a few more days” and tell you
your policy ends today.
● Finding a New Provider: You are suddenly forced to hunt down a brand-new insurance
company at the last minute because your current insurer is dropping coverage while you
still own the property.
A $3,000 Cautionary Tale
I once worked on a transaction where a seller found themselves in exactly this situation.
Because their current provider would not extend coverage, the client had to secure a
brand-new policy at the 11th hour.
The catch? The new insurer required a minimum three-month term, costing the seller over
$3,000.
Logically, the buyer should bear this cost, as their inability to close is the reason the seller
needed the extension. However, when a buyer cannot close on time, it is almost always
because they are struggling to secure their funds—either their mortgage lender isn’t funding
on time, or they cannot come up with the additional money required beyond the mortgage.
Trying to force the buyer to pay a surprise $3,000 insurance bill late in the day will not only
cause massive stress, but it can also completely kill the deal if the buyer refuses.
The Solution: Wait for the Call
To avoid this stressful and financially risky situation, my advice to sellers is simple:
Do not end your insurance coverage on closing day, unless the deal is already closed.
Instead, wait until you receive official notification from your lawyer that the transaction has
successfully closed. Only then should you contact your insurance provider to cancel the policy
effective immediately.
While this approach might end up costing you a couple of days of extra coverage premiums, it
will save you from the massive headache of trying to find or extend coverage late in the
afternoon when an extension request comes through.
Need legal guidance on your upcoming sale? If you have an Agreement of Purchase and Sale
that you would like a professional to review, please reach out. My contact information is listed
below.
Disclaimer: This post does not constitute legal advice. Every transaction and personal situation is unique.
