Insuring Your Real Estate Investment Business

Most lenders require that borrowers have property insurance as part of their mortgage loan terms. However, just because you meet the lender’s requirements does not mean that your insurance is adequate. You need to understand your risks, your limits, your tolerances, and the types of insurance available in order to ensure that your real estate investment company is adequately covered.

There are three basic types of business insurance:

– General and property liability insurance. Insurance protects you in the event that someone is hurt while on your property. Insurers not only pay the damages but also fund and handle your legal defense. Your property insurance covers your building, equipment, furniture, fixtures, and other personal assets. Most cases, your property coverage will not cover tenant-owned contents in a rental unit. Your lease should clearly state that tenants must insure their belongings.

Umbrella policy. Umbrella insurance provides additional coverage for liability after your underlying policy limits are exhausted. If someone is injured on your property and requires $300,000.00 in medical treatment, but your liability limit is $250,000, your umbrella insurance will cover the $50,000 additional (subject to the fact that the limit of your umbrella coverage is not less than that amount).

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Automobile. You need the right coverage if your company has vehicles, or you drive your own car for business purposes. This insurance usually covers bodily injury liability for injuries you cause to another driver or passenger; medical coverage for treatment for injuries to drivers and passengers; property damage liability; collision (damage caused by a car crash); comprehensive (damage not caused by a car crash); and uninsured motorists coverage. Make sure that your vehicle insurance is compliant with your state . You may need higher limits to ensure financial protection.

Life. There are many types of life insurance that can be purchased to protect your family, investments, or company in the event you die. In partnership buy/sell agreements, life insurance is often included. The insurance is used to purchase the interest of the deceased.

Workers compensation. You are required to offer workers compensation insurance if you have more than three employees. This coverage is subject to state laws. Check with your state insurance department and insurance agent to determine what you need and how it can be purchased.

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– Business disruption. This insurance is intended to replace lost income and pay ongoing expenses. It also covers the cost of setting up temporary facilities if a business is temporarily closed due to a covered peril, such as fire, storm damage or vandalism. Business interruption insurance can replace lost rent revenue if you have rental units that are not able to be occupied because of a covered peril.

– Damaged or destroyed records. This insurance will cover the loss of income and the cost to reproduce the records.

There are many specialty policies that offer coverage beyond the standard types of insurance, including flood, earthquake and terrorism insurance. You should ensure that your home office equipment is protected and that you are covered for any business-related liabilities. Many homeowner policies only provide minimal coverage for business equipment or activities. Talk to your agent to find out if you will need a separate policy or if an endorsement can be added to your homeowners policy.

Managing your Insurance Although you might like to forget about insurance, it is not something you can do once you have it. You should review your insurance needs each year, assess your coverage, and consider new products that may be a good fit for you. In case of a claim, keep a record of all assets. Follow up if you make any changes to existing policies. While it may be the agent’s responsibility to complete the paperwork, it is your responsibility to ensure you have the correct coverage.

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Remember that insurance companies have different policies. If you do change your insurers, make sure to read the new policy thoroughly to ensure you are getting the coverage you need. Do not buy a policy solely based on the rates. Make sure you are getting the right coverage and that the company has a good reputation for customer service.

Insurance is an investment. You are betting that you will need it, and the insurer is betting you won’t. You can still win the bet, no matter how you lose it.