4 Ways To Protect Your Rental Property With Investment Property Insurance

Posted on: June 6, 2011

Categories: Procedures, Property Management, Things To Consider

Author: lbuen

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Investment Property Insurance Image by JelleS via Flickr

Sleep Well At Night By Getting The Right Investment Property Insurance

How would you respond to the catastrophic news that your multi-unit apartment has sustained severe damage due to a tumultuous windstorm or a fire? Will you say:

“Oh! That’s bad to hear, but everything will be okay since I got it covered.”

“Shucks! Is the insurance I got sufficient to cover against the damage?”

“Oh no! I have not yet gotten insurance. How am I gonna recover from this? ”

You do not want to be uttering the last two statements, right? Sleep well at night knowing that your investment property is appropriately covered for such losses due to unwanted events like fire, windstorm, lightning, explosion, riot, and unwanted business scenarios such as loss of rents, loss of money, and the like, by getting the most appropriate investment property insurance for your real estate. However, newbie real estate investors often have difficulty choosing the right insurance for their building from among the multiple choices. These are discussed below.

Investment Property Insurance Options

1. Basic Form Policy

You can get either a standard fire insurance written either as Basic or Special Form. The Basic Form protects your property from “named perils.” So if the peril is not specified, it is not covered. Fire, windstorm, lightning, riot, aircraft, hail, explosion, smoke and vehicles are the typical named perils.

2. Special Form Policy

The Special Form coverage protects your property against any loss, except when specifically excluded. Examples of losses ruled out in both Basic and Special Form Policies are clean-up for methamphetamine manufacture or mold and mildew. Losses covered must pass as “sudden and accidental”, while those that materialize over a length of time, like leaky pipes that result in dry rot, are not protected since they do not pass as “sudden and accidental.” You can also add extra coverage to your Basic or Special policy. The extras that are typically added are general liability coverage, loss of rents or income, or an extra umbrella insurance to augment the extent of coverage.

3. Business Owners Package

Your third option to protect your rental property is by obtaining a Business Owners Package or BOP. A BOP ties up all obtainable coverage, such as loss of rents, theft of money, fire coverage (for Special Form), or loss of business property owned by the insured, into a single policy. However, not all properties may qualify for a BOP. Majority of insurance providers will not furnish a BOP on a rental property which only has three units or less. Apartment buildings that are more than 30 years old often do not get a BOP. This bundled coverage is reasonably priced, but the coverage is more moderate and is often available only for buildings of good quality. Terrorism insurance can also be part of the package but protection is usually minimal. On the other hand, wrongful termination, employment practices liability, sexual harassment, discrimination and coverage for earthquakes are ruled out from BOP. If you want to be protected from these risks, you can obtain additional insurance.

4. Specialty Markets

Special Markets are also labelled as Specialty Admitted Market, Excess and Surplus Lines, and the London Insurance Market. You can obtain a Special Markets policy to protect property with risks that are usually excluded by standard insurers, like vacant properties, old buildings, chemical storage facilities, restaurants and bars, and high-risk manufacturing. Owing to their high-risk nature and the limited options available, Specialty Markets policy are typically more expensive. Vacant property insurance and builders risk liability insurance (obtained during the rehab phase) typically can be obtained through the mainstream insurers but needs to be paid for in full upfront generally and typically covers a 6 month term.  Look to pay about $600 – $900 on s single family home for builders risk during your rehab phase.

There can be a lot more options for your investment property insurance; the key is to match your needs with sufficient policy so that you can sleep soundly at night.

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 4 Ways To Protect Your Rental Property With Investment Property Insurance
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