With or without a mortgage, if you have home insurance you should know what to do before selling
If we have our home insured or are thinking of taking out a home policy, it is important to know how this circumstance influences the moment of selling it and how to act. Home insurance is not mandatory in Spain, as is the case with mandatory minimum subscription insurance to drive a car, for example. But it is a highly recommended option to protect your home, cover your back in various situations and protect your loved ones.
If our House does not have a Mortgage but does have Home Insurance
It must be borne in mind that it is an essential condition when granting a mortgage that the client of the bank subscribes to home insurance for the home that they are going to acquire thanks to that loan. But in the event that, even without a mortgage, you have a policy of this type and want to sell your house, you have two options: cancel the insurance contract or transfer it to the new owner; that is, to the buyer.
The first thing to do, especially if we are going to cancel the insurance, is to be clear about the Particular Conditions of the policy since, although they are usually valid annually and are automatically extended, other types of clauses may occur. In addition, the law establishes that the cancellation must be communicated to the company at least one month in advance if you are thinking of not renewing your policy. In the event that you want to cancel your policy due to a sale, there is no deadline. But we recommend that if you have any questions about how to proceed, it is best to contact the customer service of your insurer.
What if our Home is Mortgaged?
In this case, your home will have home insurance with total security since, as we have indicated before, banks ask you to take out a home policy -with, at least, coverage against fire- in order to obtain the loan. On the other hand, the Insurance Contract Law establishes that “in the event of a transfer of the insured object” (in this case, the home), “the purchaser is subrogated at the time of disposal in the rights and obligations that corresponded in the insurance contract to the previous owner.
In other words, when you sell the home, you also do so with the insurance, which is passed on to the buyer. “Excepted”, clarifies the Contract Law, “the assumption of nominative policies for non-compulsory risks, if there is an agreement to the contrary in the general conditions”. In this scenario, the new owner has several options regarding insurance:
- A) You may not want to change companies. In this case, only the name of the policyholder would be changed, although it is normal that the premium may also vary. The company has two weeks to give its approval to the change of owner and if it decides not to grant said change, it must return the unused premium.
Regarding the obligations of the insurer and the policyholder, in the event that the change of ownership is not accepted, the aforementioned Law in its Title II (Insurance for damages), First Section (General Provisions), Article 35, provides: ” The insurer may terminate the contract within the fifteen days following that in which it becomes aware of the verified transmission. Once his right has been exercised and the purchaser has been notified in writing, the insurer is bound for a period of one month from the date of notification. The insurer must refund the portion of the premium corresponding to periods of insurance for which, as a result of the termination, the risk has not been borne.”
- B) You can cancel the insurance if you want to take out another policy with a different company. Regarding the terms and obligations, the Law (in the same Article 35) establishes that: “The acquirer of the insured thing may also terminate the contract if it is communicated in writing to the insurer within a period of fifteen days, counted from when he became aware of the existence of the contract”.
This does not imply recovering the premium. On the contrary: “In this case, the insurer acquires the right to the premium corresponding to the period that would have begun to run when the termination occurs.” In conclusion: insurance canceled early means that the premium is not returned. By law, the company is only obliged to return the amount of the premium equivalent to the remaining period of the contract in cases of a request to change the owner, if it is rejected.