It's common for the house buyer to want extra insurance (e.g. contents) whereas the bank is only interested in the house as a sellable structure, so it makes sense for the buyer to take on the insurance requirement (it's also less paperwork for the bank).

Insuring the contents of a home is routinely done as an entirely separate matter from insuring the structure. All renters have to do it that way. You can do it that way in a rent-to-own scheme too.