Definition
If the home has prepaid insurance (the seller paid a year in advance), you reimburse them at closing for the months you'll own the property. It's prorated based on remaining coverage days.
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If the seller has paid an annual homeowners insurance premium in advance, the buyer typically reimburses the seller for the unused portion at closing. The calculation prorates the annual premium on a daily basis from the closing date through the end of the insurance policy period. The buyer will typically arrange their own insurance policy to begin on the closing or possession date.
Pro Tip
Get homeowners insurance before closing and provide proof to your lender. The policy should take effect on or before closing.
Example
The seller paid $1,200 for annual homeowners insurance (expiring December 31). The property closes April 15. The buyer owes the seller for 260 days of coverage (April 15-December 31): ($1,200 ÷ 365) × 260 = $854.79.