What is the typical duration covered by a one-year insurance policy when calculating reserves at closing?

A one-year insurance policy typically requires the calculation to factor in a proration of the premium paid at closing. When a policy is purchased, the initial payment covers a full year, but since the buyer may not utilize the full coverage period before closing, it is common practice to credit or debit the seller for any unused coverage.

In real estate transactions, the typical duration for calculating reserves at closing is two months. This allows the buyer to have a cushion for the initial months of the insurance policy, ensuring that there are sufficient funds set aside for payments that will be made during the transition from the seller to the buyer's ownership.

This standard also aligns with the practice of ensuring the buyer isn’t at risk of lapsing coverage due to overlapping financial responsibility for the same term period. Other durations would not provide the necessary coverage or security for the buyer, which is why two months is considered the norm in calculations regarding reserves at closing.