8 Things Every Real Estate Investor Must Know About Landlord Insurance

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Like any other insurance, a landlord insurance is a real estate investor’s way of managing risks against uncertain losses. Can you soundly sleep at night if you are unsure of whether or not your 8-plex is insured correctly? If your tenants are compelled to move out due to fire, does your insurance cover such loss-of-rent? Before any untoward event happens and regret shows up, take the time to understand what is (or is not) covered by your insurance policy. Insurance may add to your expenses and takes off some amount from your bottom line. However, it also helps you sleep soundly at night knowing that your property is protected from unforeseen losses.

Here are some points to help you grasp crucial factors to consider when arranging for insurance for your investment properties.

Knowing How Much Liability Protection To Carry

In general, protect your real estate with as much liability protection as you can pay for, or at least a $1,000,000 liability protection for each incident. Your liability protection must proportionally grow with the growth of your portfolio. You may not expect this, but typically, the premium charge to double your protection is just minimal. For a more cost effective approach in hedging for multiple kinds of liability exposure, carry an umbrella policy. This approach covers liability in excess of the customary $1,000,000 or $2,000,000 boundaries.

Distinguishing Actual Cash Value From Replacement Cost

An Actual Cash Value coverage, which costs more, repays you for the depreciated value of your property, while a Replacement Cost policy shoulders the cost for replacing your property and possessions with materials of the same sort and quality at prevailing prices. Besides distinguishing ACV from Replacement Cost, get a good grasp of coinsurance penalty and its relevance to your investments. There is no one ideal coverage; it varies from one property to another, from one investor to another. What is important is that you understand these options so that you can wisely choose the ones that would make you feel secure. After all, that is what insurance is for.

Protection From Loss-of-Rents

You can mitigate losses due to absence of rental income if for some reason your tenants are compelled to evacuate your units, such as when your property was razed by fire or other untoward occurrence covered by your policy, through a business income coverage. There are policies which may be bound by a 12-month time limit or other lengths of time, while some require a certain level of purchase in your coverage for this option to be in effect.

Protect Other Structures and Personal Property

Most policies may not include garages, sheds, barns, outbuildings, and other detached structures, while some do. Make sure that they are covered, as well as items like air conditioning systems, refrigerators, and stoves.

Protection From Changes in Building Code

When wrecked property is restored, you may need to add some amount to update features and satisfy certain regulations. Although old properties can be exempt from new regulations, repairs checked by the local government agencies may need to be updated. Examples of features that need updates are handicap accessibility and hard-wired smoke detectors. To protect your business from these additional expenses, make sure that your policy has the Ordinance and Law endorsement, especially if your multi-unit property is relatively old.

Hedging From Flood, Water Backup and Earthquake

Losses from these occurrences are typically not covered, although you can buy these through endorsements. Find out how you can claim each indemnity from your insurance provider of choice. This information can help you wisely decide on whether to take on any of these coverages.  Sewer back-up and sump pump failure is highly recommended for most areas.

Blanket Policy Versus Separate Policies

Your premium decreases as your deductibles increase. So if you own more than one property, consider taking on a blanket or package policy. In this policy, your deductible applies per occurrence rather than per location if your properties are under separate policies. Although premium rates for blanket policy may be higher than standard policies, it is a more cost effective way of protecting more than one property as compared to buying two separate policies.

Protecting The Property Entity

Besides your real estate, it is crucial that you hedge the property entity holding your properties. Do not skip appropriate coverage just to evade the “due-on-sale” clause. The first-named insured, or the main recipient of policy benefits, must be the entity holding the property(s). There are cases, though, when additional insured and loss-payee endorsements may be enough, but in general, make it a point to be the first-named on the insurance policy.

No matter the clause, endorsements and conditions you want in your insurance coverage, it is vital to arrange it with an insurance broker whom you can rely on and who is well-versed in real estate investing. Look for someone who is happy to help you understand the protection you need for your specific case. Some agents happily do that even if they are not selling the policy themselves because they are captive agents. Insurance can add to your expenses, but you need it to hedge your real estate from uncertain losses. So take the time to learn how it works, and purchase it before the need for it arises.

 8 Things Every Real Estate Investor Must Know About Landlord Insurance

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