Transferring Home Ownership:Insurance Policy and Legal Matters

Sometimes older people transfer their homes, in full or in part, to their children as gifts, for tax purposes or in preparation for becoming eligible for some state-funded health care programs. While your accountant or financial adviser might have solid reasons for recommending you do this, he or she may be unaware of the insurance implications.

The “conditions” section of a homeowners policy limits the amount of recovery to your “insurable interest” in the home. So even if you have a $100,000 policy, if you have transferred 50 percent of your ownership and retained a 50 percent interest in the home and you suffer a total loss, you will only be entitled to recover $50,000.

To avoid this you must name the other owner as an insured on your policy. Spouses are automatically covered, provided they live at the residence. A different joint owner who resides at the house would have to be shown on the declarations as a named insured, or, if the joint owner does not reside at the house, he or she could be added to the policy through an “Additional Insured” endorsement.

Something else to remember is that unlike life insurance policies, homeowners policies may not be assigned without the consent of the insurer. So if you transfer ownership of your home, you may not turn over the current insurance policy to the new owner without the written consent of the insurance company.