Real Property Management Choice is not an insurance company; we don’t sell insurance and we’re not professional insurance advisors. However, we have seen landlords make this mistake frequently, so I’m sharing our perspective with you. Having insufficient insurance can ruin your rental business. Period.
Investment property insurance is different from your typical homeowner’s policy. It’s more complex and you may need multiple policies to fully protect your finances. You need to discuss your situation with a licensed insurance provider to make sure your coverage matches your needs.
Here are a few topics for that conversation:
- Structural Coverage
Make sure the coverage on the structure will cover major reconstruction costs if those become necessary. If your standard policy’s limits are too low, you may need to purchase additional coverage. Underestimating structural coverage can lead to significant out-of-pocket expenses if disaster strikes. - Water Coverage
Some policies exclude or minimize the coverage for water damage from leaky pipes under the slab, broken water heaters, sewer backups, water leaks from appliance supply lines, or other plumbing issues. Make sure your policy covers these kinds of issues, which are all too common in rental properties. Overlooking water coverage can result in costly repairs that could have been avoided with proper insurance. - Loss of Rent Coverage
When a tenant is displaced for repairs, you will lose rental income. Ask your agent what coverage is needed to fill in the vacancy gap. Loss of rent coverage can provide the financial stability needed during times when your property is not generating income due to unforeseen circumstances. - Liability Coverage
This covers claims that arise from injury or damage that takes place on your property (for example, a trip and fall accident). Liability coverage is crucial for protecting your assets from lawsuits and claims that can arise from accidents or injuries occurring on your property. - Specific Risk Coverage
Most structural policies don’t cover major disasters, such as earthquakes, floods, hurricanes, etc. If your property is in a high-risk area, you need to make sure you are covered. Specific risk coverage is essential for safeguarding your investment against natural disasters that are not included in standard policies. - Adding Your Property Manager as an Additional Insured
Adding the property manager you hire to your policy protects them from issues arising with the home, which is not covered through their business insurance policies. Ask your insurance agent about the cost and benefits of this action. This step ensures that both you and your property manager are protected, creating a more secure and cooperative management relationship.
In addition to these points, there are other common mistakes landlords make when choosing an insurance company and coverage:
Choosing the Cheapest Policy
While it might be tempting to go with the cheapest insurance policy available, this can be a costly mistake in the long run. Cheaper policies often have limited coverage and higher deductibles, meaning you might end up paying more out-of-pocket in the event of a claim. Instead of focusing solely on cost, consider the value of the coverage provided.
Not Reviewing and Updating Coverage Regularly
Many landlords purchase insurance and then forget about it. However, it’s essential to review and update your coverage regularly to ensure it still meets your needs. Property values, local regulations, and personal circumstances can change, affecting your insurance requirements. Schedule an annual review with your insurance provider to assess your coverage and make necessary adjustments.
Failing to Vet the Insurance Company
Choosing an insurance company solely based on price or convenience without conducting proper research can be a mistake. Look for a company with a strong financial rating, positive customer reviews, and a reputation for excellent customer service.
Real Property Management Choice specializes in managing residential rental property. While we can help you understand the kinds of events you may want insurance to cover, you really need to talk with a seasoned insurance broker to discuss the nitty-gritty details. If you’d like a referral to trustworthy local insurance brokers, let us know. We are happy to point you in the right direction!
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