Protecting your investments…
Having the right investment property insurance, not only in type of policy but amounts as well, is crucial when acquiring rental properties. You’ll want to protect yourself should disaster strike – in any form. Whether a fire is started from a faulty electrical outlet, to having a tenant create a fire simply by cooking improperly, you’ll absolutely need insurance to cover you. Otherwise, you could get wiped out financially when the worst happens. You’ll find that rental property insurance is integrally important to have whenever acquiring a new investment. But, it needs to be the right kind of insurance protection. And finding insurance for rental property is pretty straightforward. It first involves locating the right insurance agent.
Your insurance agent as part of your crew
As I’ve written here before in prior articles on the subject of insurance, I have said that “selecting the right property investment insurance starts with having an excellent, trusted property investment insurance agent as part of your overall crew of experts on your property investing team of professionals… And your crew has to be selected well before you even begin searching for new properties to acquire. Once you find a suitable property to invest in, make an offer, negotiate, then are able to close on it, you’ll need to trust your insurance agent with helping you select the best insurance for that particular property.”
Property conditions are important
Remember too that “a good property investment insurance agent will factor in the condition of the property, and where it’s physically located (for example, is it in a flood zone or not; or, is it prone to other natural disasters that could harm it?). In addition, they will take into account tenant’s being foolish, and starting accidental kitchen fires, or slipping and falling on ice on a walkway, and then suing you. Having the right amount of coverage is essential: too much means you’re overpaying for your insurance, whereas too little leaves you with a personal exposure that could ruin you. Of course, any good property investment insurance agent will recommend personal liability insurance as well as property insurance. This personal liability insurance is an absolute necessity when dealing with tenants in such a litigious society as ours.” I’ll come back to liability insurance a little later in this article…
Choosing your insurance agent
To help you determine how to insure a rental property in the best way possible, I have noted before here that you should “make sure you shop around for insurance agents, and go over with them how they would handle various negative occurrences that might befall any investment property. Remember, you need an agent that understands very well that insurance for a business like property investing is far different than insurance for a home.” A good agent will point out the differences between a standard homeowner’s insurance policy and homeowners insurance for rental property. And they need to protect you at all costs, at the best price. So make sure you take the time to shop around for a property investment insurance agent you trust. Be sure to put them in place with your other investment property crew members before you begin searching for your next property.”
Don’t be shortsighted
I have also noted here that “many investors undervalue their insurance when they are purchasing any piece of investment property…especially those investors that are just flipping houses. Too often property investors will consider the expenses that only add to the value of a property. But it’s also just as important to consider the “soft” costs of investment property acquisition when crunching all your numbers. These represent the costs not normally associated with what the potential buyer (or tenant) will not see. For property investors, underestimating the cost for insurance is simply foolish.” I have also reminded property investors that they “should be considering getting full replacement cost for property in case of something catastrophic. If your asset is wiped out because of a flood or fire you do not want to be woefully under-insured. Thinking that you’re only going to hold the asset for a very short period of time in the case of flipping, or that your tenants don’t care what kind of insurance you carry is terribly shortsighted.”
Full replacement value insurance
I’m a big advocate of obtaining full replacement value insurance on any and all of your rental properties. Spending a few hundred dollars a year more to cover yourself in case of dire circumstances and a total property loss due to fire, for example, makes smart business sense. Having full replacement cost means you won’t have to worry that you won’t be able to rebuild should you want to, in the case of a total property loss. I’ve written here in the past that “it’s foolish to shortchange and not fully protect yourself financially in the event of a real catastrophe to your investment property. Better to be prepared and be safe than sorry. Always protect your assets and add an inflated figure for insurance to your list of expenses that you’ll have to satisfy on a monthly basis. Your investment property is too valuable to risk taking such a huge loss (the difference between full replacement value and market value in insurance parlance) in case of catastrophe.”
Save by using a higher deductible
One of the easiest ways to save on your insurance premiums is to utilize a higher deductible amount for all your properties. So, for example, instead of a $500 deductible, consider going with a thousand dollars for each claim’s deductible amount. This will at least help defray the added cost of getting full replacement value insurance on the property. You can save a much greater amount if you continue to bump up your deductible amount. If you can go with a two thousand dollar deductible for any given claim, the policy savings on your rental buildings will be even greater overall than a one thousand dollar deductible will allow. Crunch the numbers with your insurance agent to determine the best deductible amount for your situation.
Don’t forget liability insurance
Liability insurance is a necessity when investing in rental properties. The “umbrella” of protection it affords if one of your tenants sues you is tremendous. And it protects you from their going after your personal possessions and accounts as well. One of my previous tenants in a four family house I used to own sued me once for a “slip and fall.” They had fallen on ice leading from the driveway to their unit’s entrance. With liability insurance, the insurance company hired a local attorney to defend me since I carried a liability insurance policy with them. In most cases, attorneys for both sides negotiate out a settlement to avoid a trial. However, as the insured, you’re not involved in the negotiations. (Though, in my case, I did have to come in to give depositions.) It’s one of the great benefits of securing liability insurance for your investment property….peace of mind. I always recommend a minimum of a one million dollar liability policy for landlords. Make sure you check with your insurance agent for his recommendation for your particular set of properties. Keep in mind that one policy can cover all your rental properties. As you add any new rental property to your stable of investment houses, you can simply add them to your liability policy.
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