How investor insurance protects your rental property
Investor insurance is inherently more complex and much less standardized than your average homeowner’s insurance products that you are most familiar with. That’s why it is crucial that property owners understand what they need to purchase to mitigate coverage holes, otherwise, they risk losing hundreds or thousands of dollars. Below is a suggested list describing essential coverage options that should be included in every investment policy. Many of these coverage enhancements are not available with a typical home and auto insurance company. That’s why it is imperative that owners discuss this with a licensed Texas insurance professional that understands the unique needs of a Texas real estate investor. If they say “you don’t really need that” then call us and we can get you connected with an agent that knows the industry and your need for risk protection.
100% Replacement Cost
Minimum coverage of $80-$95 per square foot in Texas is suggested in order to ensure your same property is rebuilt completely in the event of total loss. Do you have replacement cost or actual cash value? There is a huge difference if you have a claim.
Landlord Liability Protection
Did you know that many basic policies only cover up to $100,000 of liability per property? This may barely be enough to pay legal fees, much less to indemnify for actual damages. Coverage of at least $300,000-$500,000 is required. You’ll be surprised how little additional liability coverage actually costs
Accidental and Sudden Discharge of Water or Steam
Coverage for hot water heater bursts, pipe breaks, and other common plumbing issues are regularly left off basic policies and are some of the most frequent claims payouts.
Dwelling vs. Homeowner’s Policy
If you have a homeowner’s policy on your investment property, you will need to switch to a dwelling policy immediately. Your current policy has a provision in it that excludes coverage if you do not occupy the home.
Unlike most companies who require a deductible of 1% of the value of the dwelling, investment type policies will have a flat $1000 (on in that range) for all perils.
Most dwelling policies exclude coverage for any property left vacant for 30 - 60 days. If your home is vacant, you need to be temporarily switched to a vacant home policy in order to be eligible for a claims payout. Investor policies can have up to 180 days of coverage.
Optional coverage, Loss of Rents
If your property is significantly damaged due to a covered claim, your tenant will move out and more than likely not pay rent. With this endorsement, the insurance policy pays your rent for a certain period of time while the home is being repaired/rebuilt. How long will the rebuild be if it’s a fire? Investor policies will sometime be up to 24 months.
Ordinance law is coverage for loss caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Older structures that are damaged may need upgraded electrical; heating, ventilating, and air-conditioning (HVAC); and plumbing units based on city codes.
The landlord’s insurance agent should periodically provide a policy check-up review. You could provide a value-added service to encourage this. Here are some essential coverages to meet the minimum threshold for an adequate landlord insurance policy:
- Personal injury that covers wrongful eviction and invasion of privacy ($1M limit suggested)
- Get enough coverage to rebuild your whole property, not just a part of it! Check out the “Coverage A” limit and be sure it’s a reasonable estimate for total reconstructing cost.
- Extended Replacement Cost – covers reconstruction cost overruns – get a minimum of 125%
- Building Ordinance and Law – adequate limit to covers the additional cost of rebuilding old properties to be compliant with modern building code
- No exclusion for marijuana grow houses
- No Exclusion of the landlord’s vicarious liability from tenant’s pets (known or unknown to the landlord)
A good robust policy should also have these coverages, though they may still be more difficult to find in the insurance marketplace:
- Sewer back up
- Extended Fair Rental Value
- Property Manager listed as “additional insured”
- Service Line and Equipment Breakdown