Homeowners Insurance and Beneficiary Deeds
In Colorado beneficiary deeds, allow homeowners to pass their property to a named beneficiary upon their death. This will happen without the property going through probate. A 2021 case highlights an important issue, however. It comes from the Eighth Circuit Court of Appeals, Strope-Robinson v. State Farm. Does homeowners insurance remain in effect after the owner’s death?
The Strope-Robinson Case
In this case, Dawn Strope-Robinson inherited a house in Minnesota from her uncle, David Strope, through a beneficiary deed. At the time of his death, a State Farm homeowners policy insured the house in David’s name. Shortly after his passing, David’s ex-wife intentionally set fire to the home, causing significant damage.
Dawn filed a claim with State Farm for the damages. Her claim was for the loss of the home, personal belongings, and rental value. State Farm covered the personal property loss. They denied covering the house itself, arguing that Dawn was not a named insured. Dawn sued. The court ruled in favor of State Farm, finding that because the house automatically transferred to Dawn upon David’s death; his estate no longer had an insurable interest. Additionally, the court held that homeowners insurance is a personal contract and does not automatically transfer with the property.
What This Means for Colorado Homeowners
Like Minnesota, Colorado law states that property conveyed through a beneficiary deed transfers immediately upon the owner’s death. This means when a home passes through a beneficiary deed, the previous owner’s homeowners insurance policy stops covering the property. Someone has to take steps to maintain coverage. If the new owner fails to secure a policy in their name, they may remain unprotected in the event of damage or loss.
How to Protect the Property
To avoid a lapse in insurance coverage, homeowners and beneficiaries should take the following steps:
- Review Insurance Policies Before Death – If possible, the current homeowner should check with their insurance provider to see if the policy can be transferred to the grantee-beneficiary or if the beneficiary can be added as an insured party before the owner’s death.
- Secure New Insurance Promptly – Once the property transfers, the new owner should immediately obtain homeowners insurance in their name to avoid gaps in coverage.
- Work With an Attorney – Estate planning attorneys can help ensure a smooth transfer of property and minimize the risk of legal or financial issues for the beneficiary.
Final Thoughts
The Strope-Robinson case serves as a reminder that homeowners insurance does not automatically extend to new owners under a beneficiary deed. Proper planning can prevent unexpected financial burdens and ensure continued protection for inherited property. If you are planning to pass property through a beneficiary deed or have recently inherited a home, reviewing your insurance options with an attorney or insurance provider is a wise step to take.