Have you structured your insurance correctly for the real estate investments you own? Insurance is one detail that you do not want to make a mistake on because once you discover you’ve improperly insured one or all of your real estate holdings, it’s usually too late! You’re about discover what most investors do not know about insuring real estate investments, including the biggest insurance mistake far too many investors make. You’ll learn 5 crucial points about insurance that can help prepare for when (not “if”, but “when”)disaster strikes. My goal is for you to better understand if you are properly insured and become aware of changes you may need to make. Here are the 5 keys to insurance for real estate investments:
Key # 1 – More Than One Insurance Broker
An insurance broker represent several carriers while the typical AllState or State Farm insurance agent represents only one carrier. Further, not all insurance brokers write policies with the same carriers so you may find that each has their own strengths.
Key # 2 – Correct Type of Policy
- Landlord ($): For properties that you will be renting to tenants.
- Vacant ($$): For vacant properties that you may be cosmetically renovating and reselling.
- Builder’s Risk ($$$): For vacant properties that you plan to do major renovations to.
Key # 3 – Name of Insured Must Match How the Property is Titled on the Deed
This is the single biggest mistake far too many investors make. Whatever the Deed shows as the title holder MUST be the exact same name of insured on the insurance policy.
Key # 4 – Enough Coverage
- Damage: Based on replacement cost and depending on your exact situation, you may choose a different amount than what the replacement cost estimator determines.
- Lost Rent (for Landlord Policies): Set at the gross rent you expect to collect.
- Liability: Ask your insurance broker for the proper amount and don’t forget to own your real estate in a limited liability entity.
- Pets: If your tenants have a pet, make sure you either have pet coverage in your policy (and the pet is not on the vicious list) or the tenant has paid for renter’s insurance and that policy has pet coverage.
- Flood: Even if you are not in a flood zone, if you are near water, you may want to get flood insurance. Just ask people from Nashville, TN what happened in May 2010. Or people on the East Coast during Hurricane Sandy. Or those in the Carolinas from Hurricane Joaquin. Flooding is more common than you think.
- High Deductible: Consider a higher deductible since you probably won’t file a claim below $5,000 anyways.
Key # 5 – Don’t Cheat
Insurance companies make money in two ways; (a) Collecting premiums and; (b) NOT paying claims. Don’t give insurance companies anyway to wiggle out of paying out your claim.
Those are the 5 keys to insurance for real estate investments. If you have anything to add to this topic, such as stories of problems or insights you have discovered on insurance, please share your wisdom the comments section below.