Humber/Ontario Real Estate Course 2 Exam Practice

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If the seller has prepaid the yearly premium for home insurance of $1,000 and the sale closes on February 15th, which of the following statements is correct regarding the statement of adjustments at closing?

  1. No adjustment is made because insurance cannot be transferred from the seller to the buyer

  2. The seller 's portion is $123.29 and the balance of the prepaid amount will be credited to the seller on closing

  3. The seller will be credited for $1,000, as this amount was prepaid and should be credited to that seller

  4. The seller will receive a credit on closing for the prepaid amount covering the period February 15th to December 31st of that year

The correct answer is: The seller will receive a credit on closing for the prepaid amount covering the period February 15th to December 31st of that year

In this scenario, the correct answer is D because when the seller has prepaid the yearly premium for home insurance and the sale closes on February 15th, the seller will need to provide a credit to the buyer for the portion of the insurance premium that covers the period after the sale closes. Since the insurance was prepaid for the entire year, the seller would be entitled to a credit for the portion of the premium that covers the period after the sale closes on February 15th until the end of the year on December 31st. Options A, B, and C are incorrect because they do not accurately reflect the situation where the seller has prepaid the insurance premium for the entire year and the sale closes in the middle of the year. The correct adjustment at closing would involve the seller providing a credit to the buyer for the portion of the prepaid premium that covers the period after the sale closes.

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