lease option?

I’m beginning to get a clear picture on just how the lease option works. There is one question that keeps poping into my mind and I never see it mentioned here on the forum.

How does the insurance work?

If my assumption is correct, The origional owner will hold the insurance on the prop and in the event the home burns or is destroyed the only person who gets payed is the origional mortgage holder or prop owner (if there is no mortgage)

does my tenant buyer just lose the non refundable option payment he gave me? AND all the rent money which went toward the pruchase of the home? Or do I need to buy some type of insurance to protect him as well as me.

Sorry if this is a stupid question. I’m a serious beginner

Insurance in a lease option is handled different depending on what position you are in.
As a T/B’er, doing a sandwich lease option, it would be wise to have the seller place a landlord or rental dwelling policy on the property, and name you or your entity as additionally insured.
This would cover you, for structure, not content.
Something that I’d suggest if doing a sandwich lease option, you make a contractual obligation of the seller, and verify that it gets done.

The other scenario, where you are the seller, and have a tenant buyer.
Something I’m quite familiar with, since I sell a lot of homes I own with a lease option, is simply having the house covered with rental dwelling insurance and liability insurance, with my entity and the lender as insured etc.
I make it madatory that all T/B’ers get renters insurance, since heaven forbid, a fire were to happen, my insurance will replace/repair the structure, but not the tenants belongings.
Sure, the option stays alive until the house is restored, or, the tenant can walk away, this is all covered in the option agreement they sign with me.
As for option money going back to them, nope, if they want to forfit the option, they lose that money.
But, they can keep that money working for them, and remain in the agreement waiting on repairs or rebuilding etc.

Anyway, does that help?

Take care,
Jim FL

Yes that is a big help thanks Jim! I noticed you mentioned that you require your T/b’s to purchase renters insurance in your contracts.
This brings up another question which has been on my mind.
Can you recomend a good source for a good standard lease option contract which can be edited for the strucure of each individual deal? or would I need to have an attorney draw up a new contract for each individual deal?

Sure, sources for contract samples, yes.
Any contract you purchase, would need to be checked and reviewed, perhaps even altered by competent local legal counsel for local laws etc.
I’d suggest Lou Brown, and Bill Bronchick for forms.
Don’t know if they sell them single, but I do know they come in their course materials, which are also excellent.

Jim FL