Purchasing the right insurance for your real estate investment properties is crucial to protect your assets and business. As an investor, you have unique risks and exposures that require specialized insurance policies suited for landlords and rental properties. Choosing the incorrect insurance or not having adequate coverage could end up costing you tens or even hundreds of thousands of dollars if something goes wrong.
That’s why it’s critical that you ask the right questions of your insurance agent when buying policies for your properties. Getting clear, comprehensive answers will ensure you get the proper protections in place so you can have confidence your investments are truly covered.
In this comprehensive guide, we will explore the top 10 most important questions to ask your insurance agent about real estate investment insurance so that you can safeguard your properties and avoid any costly coverage gaps.
Before diving into the key questions, it’s helpful to understand the different types of insurance policies investors commonly purchase. The right insurance plan will depend on factors like:
Common real estate investment insurance policies include:
Table 1: Common Real Estate Investment Insurance PoliciesPolicy | Who It’s For | What It Covers |
Landlord or Rental Property Insurance | Landlords, rental property owners | Similar to homeowners but adds loss of rent, risks of having tenants |
Vacant Property Insurance | Investors, flippers, landlords between tenants | Protects investment properties while unoccupied |
Builder’s Risk Insurance | Investors doing major renovations | Covers properties under construction from damage |
Flipper’s Insurance | House flippers | Affordable coverage tailored for short term flips |
Commercial Property Insurance | Commercial building owners | Protects office buildings, retail shops, apartments |
Now let’s explore the top questions real estate investors should be asking when they sit down with an agent to discuss insurance for their rental properties and other investment holdings.
This should always be your first question. Many investors wrongly assume their current homeowner’s insurance policy will fully cover their rental properties. While homeowners insurance will provide some protections, it is usually limited to owner-occupied dwellings and excludes certain important coverages needed for investments like loss of rent.
Specialized landlord or rental property insurance contains provisions to cover the unique exposures faced by rental properties that a standard homeowner’s policy does not address. Always disclose to your agent that the home will be used as a rental or investment, even if you plan to occupy it in the future.
Key Takeaway: Consult with your agent about options for rental property insurance, landlord insurance, vacant dwelling insurance, and other alternative policies specifically designed for investment properties.
While most landlord policies cover common risks like fire, lightning, theft, and vandalism, it’s important to understand exactly what perils or causes of loss your particular policy includes. For example, most standard policies exclude flood, earthquake, mold, and other common issues in certain geographic regions that call for special riders or endorsement.
You also need clarity around the monetary coverage limits provided under your policy. What is covered under dwelling coverage, loss of rent, liability protection, etc.? Understanding the fine print is critical so you are not surprised by coverage gaps when you actually need to file a claim.
Key Takeaway: Make sure you understand exactly what is and isn’t covered under your landlord insurance or rental property policy, including dollar limits for different types of losses. Watch for exclusions like floods, earthquakes, mold, and more.
One key point of confusion for many real estate investors is how dwelling coverage limits are calculated by the insurance company. Essentially, this coverage helps reimburse you to rebuild or repair damage to the physical structure itself. There are two main valuation methods:
Actual Cash Value (AVC) – This is the depreciated value of the structure at the time of loss. For older properties, this amount can be significantly less than what it would cost to rebuild.
Replacement Cost – Reimburses the full cost to reconstruct the damaged structure with like kind materials. This is the preferred option as it better reflects the true cost of rebuilding.
Understand whether your policy pays ACV or replacement cost upfront so you know what to expect in the event of a total loss. Ensure the dwelling coverage limit is adequate to fully rebuild in today’s construction market as materials and labor costs can far outpace inflation.
Key Takeaway: Clarify whether your investment property insurance policy pays actual cash value or full replacement cost if the dwelling itself is completely destroyed. Make sure the limit is sufficient.
A major risk for rental property owners is loss of rent due to an insured damage claim or disaster rendering the home uninhabitable for a period of time. For example, a kitchen fire may require 4 months for renovation work before new tenants can move back in. That’s 4 months of lost rental income!
Quality landlord policies will include some level of loss of rent coverage to reimburse you for lost income when displaced tenants cannot pay rent due to a covered loss. Understand the waiting period before coverage kicks in along with the maximum monthly limit. Also, clarify if code upgrades triggered by a claim are covered.
Key Takeaway: Ask your agent specifically if your rental property policy includes coverage for loss of rental income. Get details on the claim waiting period, monthly limits, coverage duration, and limitations.
All quality rental property insurance policies bundle in liability coverage to protect owners when tenants, guests, or others are injured on the insured premises and sue. We live in an extremely litigious society, so carrying robust liability coverage is a must to shield your personal and business assets. Most policies start around $100k, but limits of $500k, $1 million, or more are readily available and affordable. Understanding the risks of a lawsuit stemming from a tenant slip and fall or other accident, higher liability insurance limits are wise.
Key Takeaway: Ask your insurance agent what the liability insurance limit currently is on your policy and if higher limits can be added. Protect yourself commensurate with your overall net worth.
Umbrella insurance provides inexpensive extra liability coverage that kicks in once the underlying liability policy is exhausted. Often running $300 to $500 per year, umbrellas provide an additional layer of protection up to $1 million to $5 million. They make the most sense for larger real estate investors who own multiple properties.
Key Takeaway: Inquire whether adding an umbrella liability policy makes sense in addition to expanded general liability coverage for additional peace of mind.
There are often many potential credits and discounts to help property owners reduce insurance premium costs for rental dwellings and investment properties. Common examples include:
Ask your agent to review all possible discounts to help minimize your policy rates without sacrificing necessary protection. Provide details on safety devices and recent updates that could score your savings.
Key Takeaway: Don’t be afraid to inquire about any and all potential policy discounts that could reduce your insurance premium costs. Mention safety devices and upgrades.
The last thing you want when disaster strikes is to scramble to figure out how to file a claim. Well before you need to use your landlord insurance policy, clarify the process, key contacts, and expectations should you need to report a claim. Is there a specific claims department number to call or special procedures for investment properties? What documents or data will they require?
Run through a mock claim scenario with your agent to understand expectations so you are prepared. Ask how quickly claim payments are made so you know how to plan financially. The more you understand the claims process upfront, the smoother it will be when the time comes.
Key Takeaway: Clarify the exact claims process, requirements, and timeframes in advance with your agent so you know what to expect if the need arises down the road.
With all the talk of coverage, limits, and discounts, at the end of the day, the cost of your insurance still matters. Balancing necessary coverage to properly insure investment property risks with affordable premiums is key for investor bottom lines. When buying landlord insurance, get quotes from multiple highly-rated insurance carriers before deciding. Websites like CoverWallet.com make this easy.
Expect rental property coverage to cost more than owner-occupied insurance since there is innately more risk in insuring other people’s actions when they occupy the property. However, don’t assume one carrier necessarily has the best rates across the board. Get several quotes for your specific scenario to make the best choice.
Key Takeaway: Shop insurance quotes from multiple carriers when buying rental property coverage to find the optimal balance of rate and coverage for your situation. Expect to pay moderately more than standard homeowner’s insurance.
Work closely with your insurance agent during risk assessment conversations to identify ways you may be able to trim insurance costs through relatively inexpensive loss control measures. Installing new fire and burglar alarms, upgrading to modern electrical panels with circuit breakers, repairing old plumbing lines, clearing brush around the structure, and standard maintenance can sometimes yield policy discounts. Other upgrades like a new roof may also warrant savings. Discuss options with your agent.
Key Takeaway: Have a candid conversation with your insurance agent about potential loss control measures you can take to decrease risk factors that insurance companies use to set rates. This could save you substantially on premiums.
Table 2: Top Loss Exposures for Rental Properties
Risk | Average Claim |
Water damage from burst pipes or leaks | $7,000 |
Fire damage from electrical or heating issues | $45,000 |
Mold damage from water issues | $9,000 |
Liability from tenant or guest injuries | $24,000 |
Theft from break-ins | $3,500 |
As a real estate investor, your rental properties are valuable assets that need to be properly protected. Unfortunately, many investors wrongly assume their standard home or business policies will fully cover their investment holdings. In reality, specialized real estate investment insurance is essential to safeguard against the unique risks facing landlords.
At Branco Insurance Group, we offer tailored coverage solutions for rental properties, including landlord insurance, to meet the specific needs of investors. Key coverages to ask about include:
Loss of Rent: Protects against loss of rental income if a covered claim displaces tenants for an extended period. Make sure you have adequate coverage limits.
Liability Protection: Shields your personal and business assets if tenants, guests, or others are injured on the insured property. Carry ample limits of at least $500K.
Replacement Cost Value: Ensures complete reimbursement to rebuild at today’s construction rates – not just depreciated structure value. Critical for older properties.
Loss Control Discounts: Reduces premiums through mitigation upgrades like smoke detectors, security systems, and more. Ask us how to qualify.
Properly insulating your real estate investments is just smart business. Our agents have extensive experience tailoring coverage for investment property owners. We make it easy to protect your assets so you can focus on profitability. Contact us today to discuss your specific insurance needs without obligation.
A REIT or real estate investment trust needs insurance policies like property insurance and general liability insurance to protect their substantial real estate investment holdings. Larger REITs often carry $1 million plus liability limits. Directors and officers (D&O) insurance also covers REIT executives from wrongful acts on the job.
Investor insurance or landlord insurance provides protection for real estate investors beyond standard home and business policies. Key coverages include rental property insurance, vacant dwelling coverage in between flips or tenants, flip property insurance for house renovations, and umbrella insurance for higher liability limits. These mitigate risks specific to real estate investment like rental property ownership.
There are various avenues to invest in real estate beyond directly owning physical property. Any asset or security deriving value from real estate constitutes a real estate investment. Some examples include rental properties, house flipping, REITs, real estate securities and mutual funds, commercial real estate, and real estate crowdfunding.
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