Selling on Wrap, do buyers need their own insurance?

Question

Hi All!

I have a home which I bought three years ago as a rental. I got a bank financing on it. I'm looking to owner finance it out on a wrap. My question is, do the buyers have to have their own insurance policy or do I just add them as additional insured on my current policy?

Andrew Postell · Answer

@Aroldo Villarreal this is a SUPER important question.  The terms of your current loan requires that insurance is in place.  It does not require that it is under your name though.  It will require that the property is protected and that the mortgage company is paid first on the insurance policy.  So if you choose for the new owner's to have insurance you will need your mortgage company listed as the first mortgagee on the policy and you listed as yourself (or your LLC, etc) as the second mortagee on the insurance policy.   This way everyone is protected.  However, keep in mind, if for whatever reason the buyer's don't pay their insurance you will be required to buy it.  Feel free to ask more questions here if you need.  Thanks!

Aroldo Villarreal · Answer

@Andrew Postell - thank you very much for your time. This really helped!

Andrew Postell · Answer

@Aroldo Villarreal I would certainly suggest the 2nd option over the first option.  Again, keep in mind if they don't pay their insurance it could come back on you.  If you choose to keep your own insurance I would not add anybody as an additional insured.  Anybody you add receives benefits from the policy.  That policy is for your protection and your mortgage company.  Hope that helps.

Aroldo Villarreal · Answer

@Andrew Postell - Thanks for your reply!

In your experience, would it be better to:

A) Keep my current insurance and just add the buyers as "additional insured"? Or is it supposed to be "Named insured" and my LLC "additional insured"?

Or

B) Cancel my policy, have them get their own insurance and name my mortgage company as first mortgagee and my LLC listed as second mortgagee?

Just looking for what's the most common way to do it here in Texas.

I read about other insurance terms HERE, so just trying to "wrap" my brain around it. Thanks!