Downsizing your home: insurance adjustments to make

Downsizing is usually described as a financial simplification, and it is, but the insurance does not simplify by itself. A smaller house is not a smaller version of the old policy; a condo is a different form altogether; a rental drops the dwelling coverage entirely and leaves the contents and liability parts standing alone. Meanwhile the old house sits empty or staged while it sells, and an empty house is the one thing a standard homeowner policy is designed not to cover for long.

This guide walks through what the move touches, in the order the events usually happen: the old house from listing to closing, the new home's form and limits, the contents that did and did not make the trip, the auto and umbrella policies that were never about the house but are rated on the address, and a handful of habits from the larger house that no longer fit.

The old house between moving out and closing

Homeowner policies contain a vacancy condition. Once the house has been empty of people and furniture for longer than the period the form allows, several coverages narrow or stop: vandalism, glass breakage, water damage from frozen or burst pipes and sometimes theft drop away, and some carriers reserve the right to cancel outright. The period differs by carrier and form, so the first call before the moving truck arrives is to the carrier of the old house, asking two questions: how long the policy will tolerate a vacancy, and whether it will write a vacancy endorsement to extend it.

If the sale is expected to take longer than the tolerated period, the choices are a vacancy endorsement on the existing policy or a separate vacant-dwelling policy, which costs more per month and covers less, but covers the fire, wind and liability exposures that matter. A staged house with furniture in it is a grey area; some carriers treat staging as occupied, most do not, and the answer should be in writing. Coverage on the old house ends at closing, when the buyer's policy takes over, and the unused premium is refunded; cancel it effective the closing date, not the moving date.

In Idaho and Utah the seasonal risk is a frozen pipe in an unheated empty house; in Arizona and Nevada it is a water heater or supply line failing in summer heat with nobody there to hear it. In all four, shutting the water off at the main and leaving the heating or cooling on at a low setting is both a loss-prevention step and, under many vacancy endorsements, a condition of coverage.

The new home decides the form

A smaller detached house takes the same form as the old one, with the dwelling limit recalculated. The limit is the cost to rebuild the new house, not its purchase price and not the old house's limit carried across. Newer, smaller houses in master-planned areas of Chandler, Henderson or Meridian are often cheaper to rebuild per square foot than an older custom house was, but a smaller house in an older Salt Lake City or Boise neighbourhood may cost more per foot because of its construction. Ask for the carrier's replacement cost estimate and read it rather than accepting a number that resembles the sale price.

A condo takes a unit-owner form. The association's master policy covers the building's structure and common areas; the unit-owner policy covers what the association's declarations make the owner's responsibility, which in a bare-walls arrangement includes the cabinets, flooring and fixtures inside the unit and in an all-in arrangement includes far less. The association's documents, not the carrier, decide where that line falls, and the unit-owner's dwelling limit should be set from them. Loss assessment coverage, which pays your share of a deductible or an uninsured loss the association passes to owners, is the endorsement most often missing on a condo policy and the one most often needed after a hail or fire loss on a shared building.

A rental takes a renters policy: contents and liability, no dwelling. It is inexpensive, and the temptation is to skip it after decades of paying for a house. The liability part is the reason not to; it is what responds when a guest is injured in the apartment or the bath overflows into the unit below.

Contents: what made the trip and what it is worth

The contents limit on a homeowner policy is usually set as a fraction of the dwelling limit, which means a smaller house gets a smaller contents limit by default. Sometimes that is right; a downsizing household often sells or gives away half its furniture. Often it is wrong in the other direction, because what survives the cull is the good furniture, the art, the jewellery, the tools and the collections, and those are exactly the items a standard form caps with sublimits.

The move is the moment to make a proper inventory, because everything passes through your hands anyway. Photograph each room as it is packed, keep receipts and appraisals in one folder, and schedule the items that exceed the form's sublimits: jewellery, silver, firearms, cameras, musical instruments, fine art. A scheduled item is insured at its agreed value, without a deductible and against loss of most kinds, which the base contents coverage does not do. Then set the contents limit from the inventory rather than from the default fraction.

Check the valuation basis too. A policy written years ago may pay actual cash value on contents, which deducts depreciation. Replacement cost on contents is usually a modest endorsement and is the difference between being paid for a ten-year-old sofa and being paid for a new one.

Liability, the umbrella and the policies rated on the address

Personal liability coverage on the new policy should not drop because the house did. The exposure is about what you own in total, not the size of the lot, and a household downsizing at retirement often holds more savings and equity than it did in the larger house. Keep the liability limit at least where it was and keep the umbrella in force above it; the umbrella carrier needs to be told about the new home policy so the underlying limit it requires is confirmed rather than assumed.

Auto policies are rated on the garaging address, and a move within the same metro area can raise or lower the premium depending on the ZIP code's claim history. If the downsizing includes selling a second car, remove it from the policy on the day it is sold and keep the bill of sale; a car still listed is still rated, and a car transferred to a family member without paperwork is a liability question waiting to be asked. A move across a state line is a larger change and is covered in a separate guide.

Habits from the larger house that no longer fit

A few settings on the old policy tend to travel to the new one without anyone deciding they should.

• A high dwelling deductible that made sense against a large limit may be out of proportion on a smaller one. Reset it to an amount you would pay without hesitation.
• Other-structures coverage sized for a workshop, a pool house or a detached garage is wasted premium on a condo or a lot with none.
• A pool, trampoline or dog that was disclosed on the old policy may not exist at the new address; a pool at the new address that was not disclosed is a claim problem.
• Water backup, service line and equipment breakdown endorsements are worth more, not less, on an older or attached home; do not drop them because the premium is being trimmed.
• A flood or earthquake policy is tied to the old address and does not transfer. In Utah's Wasatch Front and Idaho's snowmelt floodplains, price the equivalent at the new one; in low-lying parts of the Phoenix and Las Vegas valleys, check the flood zone before assuming the desert is dry.
• Multi-policy discounts assume the home and auto are with the same carrier. If the new home goes to a different carrier, the auto discount ends at its next renewal.

A worked example

Suppose a couple sells a house insured for $650,000 in dwelling coverage with a $2,500 deductible and moves to a condo whose association runs a bare-walls master policy. Their new unit-owner policy needs a dwelling limit of $90,000 for the interior finishes the association makes them responsible for, a contents limit they set at $120,000 after inventorying what they kept, a $1,000 deductible, loss assessment coverage of $50,000, and a scheduled jewellery item at $15,000. The old house stays on the market for four months; a vacancy endorsement costs them $300 for the period and keeps water damage covered. Their liability limit stays at $500,000 and the umbrella stays in force. The condo policy costs a fraction of the old one, and the saving, not the drop in coverage, is where the money comes from. The figures are illustrative.

How to use this

Send the old declarations page, the new address, the closing date on each side and, for a condo, the association's declarations and its master policy certificate. We set the vacancy coverage on the old house to end at closing, write the new home on the right form with limits from the rebuild estimate and the inventory rather than the defaults, move the auto and umbrella to the new address, and list the discounts that changed. Where the existing carrier can do all of this on one call, the recommendation is to stay put.