5 Common Insurance Mistakes That Delay Real Estate Closings... a Guide for Real Estate Agents

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👉 5 Common Insurance Mistakes That Delay Real Estate Closings

You've likely experienced the frustration of a delayed closing due to insurance issues that could have been avoided. As a real estate agent, these setbacks not only affect your commission timeline but also strain client relationships and potentially jeopardize deals. While insurance requirements might seem straightforward, even seasoned professionals can overlook critical details that lead to costly delays. Understanding the five most common insurance pitfalls won't just help you close deals faster - it'll position you as a more valuable resource for your clients.

Late Proof of Insurance

When you're rushing to close a real estate deal, submitting proof of insurance at the last minute can derail the entire transaction. Most lenders require proof of homeowner's insurance before they'll release funds, and getting this documentation can take several days.

You'll need to advise your clients to start shopping for insurance at least three weeks before closing. Tell them to contact multiple insurers for quotes and have them submit their chosen policy information to the lender immediately.

The insurance binder must show adequate coverage amounts, proper deductibles, and the lender listed as a mortgagee. If there's a problem with the policy, you'll have time to address it without delaying closing.

Remember that in high-risk areas, additional coverage like flood insurance might be required.

Insufficient Coverage Amounts

Although real estate agents often focus on getting insurance in place quickly, recommending inadequate coverage amounts can expose both clients and agents to significant liability.

You'll need to ensure your clients have sufficient coverage that aligns with their property's actual replacement cost, not just the purchase price or market value.

Don't assume standard coverage limits will adequately protect your clients.

Consider factors like local construction costs, special features, and upgraded materials when determining appropriate coverage amounts.

You should also account for additional structures, personal property, and liability protection.

If you're unsure about recommended coverage levels, direct your clients to experienced insurance professionals who can perform detailed replacement cost calculations.

This extra step helps prevent coverage gaps that could lead to devastating financial losses and potential legal issues.

Missing Prior Claims History

A crucial oversight in real estate insurance occurs when agents fail to review their clients' claims history. When you neglect to examine past claims, you're missing vital information that insurers need to assess risk and determine coverage costs.

Insurance companies will uncover these claims anyway, potentially leading to delays, higher premiums, or even coverage denials.

You'll need to ask your clients about prior claims for the past 3-5 years, including water damage, theft, fires, or liability incidents.

Don't rely on their memory alone - request official loss reports from their previous insurers.

Make sure you document everything in writing and verify the information's accuracy.

This proactive approach helps prevent last-minute surprises that could derail your closing and damage your professional reputation.

Overlooked Home Insurance Requirements

Many real estate agents overlook critical home insurance requirements that can jeopardize their clients' coverage and transactions.

You'll need to verify that your clients meet specific insurance conditions before closing, including proper dwelling coverage amounts, flood insurance for properties in FEMA flood zones, and windstorm coverage in coastal areas.

Don't assume standard homeowners policies cover everything.

You should check if the property requires additional endorsements for features like pools, trampolines, or home businesses.

Some insurance carriers won't cover homes with certain risks like old roofs, outdated electrical systems, or aggressive dog breeds.

Make sure you're familiar with local ordinances that mandate specific coverage types, and always document that your clients have secured the required insurance before proceeding with closing.

Incorrect Property Classification

Real estate agents who misclassify properties on insurance applications can trigger claim denials and coverage gaps for their clients.

You'll need to accurately identify whether a property is owner-occupied, a rental, vacant, or under renovation. Each classification carries different risk levels and premium rates.

Don't assume a property's current use will remain the same after closing. If your buyer plans to convert a single-family home into a duplex or start an Airbnb, you must disclose these intentions to the insurance company.

Similarly, properties under renovation require special coverage that standard homeowner's policies don't provide.

Always verify zoning requirements and discuss your client's intended property use before submitting insurance applications. This prevents delays at closing and ensures your clients have appropriate coverage for their specific situation.

Frequently Asked Questions

How Long Before Closing Should Buyers Start Shopping for Home Insurance?

You'll want to start shopping for home insurance at least 30 days before closing, giving you enough time to compare quotes, get approvals, and secure the best coverage.

Can Sellers Transfer Their Existing Insurance Policy to the New Buyer?

No, you can't transfer an existing home insurance policy to a new buyer.

Insurance policies aren't transferable since they're based on the policyholder's specific details, claims history, and credit rating.

What Happens if Insurance Costs More Than Initially Estimated?

You'll need to notify your lender immediately since higher insurance costs affect your monthly payment and debt ratios.

The lender may need to revise your loan terms or closing documents.

Are Insurance Rates Negotiable Between Different Carriers for the Same Coverage?

You'll find insurance rates vary significantly between carriers for identical coverage.

It's worth shopping around and getting multiple quotes to secure the best possible rate for your needs.

Do Renovated Historic Homes Require Special Types of Insurance Coverage?

You'll need specialized historic home insurance to cover unique features, restoration costs, and building code upgrades.

Many standard policies won't adequately protect these distinctive properties' authentic materials and craftsmanship.

Conclusion

By staying proactive about these five insurance pitfalls, you'll save time and protect your clients from closing delays. Make sure you've got proof of insurance ready early, verify coverage amounts match replacement costs, check claims history thoroughly, meet all requirements, and classify properties correctly. When you address these common mistakes upfront, you'll create smoother transactions and better serve your clients' needs.