No matter how many rental units your property has, it is important to have the right insurance coverage. This includes protecting your investment in the event of fire, vandalism or other physical losses, as well as covering you in the event of liability claims.
Russ Whitney, a real estate investor expert, says that you work hard to build an income-producing portfolio. Make sure you have adequate insurance to protect it. You don’t want over-insuring, so be careful about the details.
Russ Whitney, the best-selling author of The Millionaire Real Estate Mindset (Doubleday), is also known as Russ Whitney. According to Whitney, the first step in protecting your rental property is finding an independent agent who has experience in this type coverage. Independent agents allow you to shop around for the best rates and coverage packages from different carriers. You shouldn’t assume that an agent who has handled your personal insurance for many years will have the knowledge you require. Ask the agent how much experience they have with rental properties and if they can assess your needs and make the appropriate recommendations.
Your homeowners insurance may be sufficient coverage if you only own a few units or occupy one of the multi-unit buildings. This endorsement is called “additional resident rented to others” and can be used for up to four residential properties.
After you have built up your rental portfolio to more than four units, there are two options for insurance. Either find an insurance company that writes separate policies for each property or buy a commercial policy that covers all non-owner-occupied properties.
What coverage do you require?
Insurance should cover the cost of rebuilding or repairing the property following a covered loss. It should also cover additional costs for upgrades required by local ordinances. The policy should also cover loss of rental income if the property is unable to be occupied because of a covered loss. Coverage should also be provided for furnishings and appliances that are found at the rental property.
Your insurance won’t cover the contents of your tenants. They must get their own coverage through a renter’s policy. Jeffrey Taylor, a property management expert and author The Landlord’s Kit suggests that you inform your tenants about this topic by providing a form explaining “the enormous risk they take by failing to obtain a low-cost renter’s policy.”
Flood and earthquake insurance are usually issued separately. If someone is hurt on your property, it could be seen as you being a “deep-pocket” investor. Make sure that your policy covers physical injuries and includes libel and slander as well as unlawful and retaliatory expulsions and invasions of privacy by tenants and guests.
Managing your insurance
Insurance companies often offer discounts for properties that meet certain criteria. Your premium may be reduced if you have a fire alarm system. This can alert either the central reporting station directly or the fire department. Insurance companies will sometimes discount your premium if you have smoke alarms, fire extinguishers and deadbolt locks. You may also be eligible for a discount if your dwelling was built in the last eight years.
Insurance companies are increasingly conducting inspections of rental properties before providing coverage. Some states require that the insured have a satisfactory credit rating. Insurance companies screen landlords and refuse to cover high-risk tenants in much the same way you screen your tenants. Insurance companies are offering new coverages and targeting different markets.
You should not just renew your policy when it expires. You can review the coverage to make sure it is current and compare rates with other companies.
When choosing an insurance company, cost is just one consideration. Make sure that the company is financially sound and has a track record of customer service and payment claims.
