INFORM

PROPERTY INSURANCE

Good “Policies” When It Comes to Property Insurance

By Michelle Gamble

Property insurance provides protection against unexpected accidents and disasters. Great insurance coverage gives property owners and renters reassurance that in the event of the unexpected, losses will be covered. So, it’s important to understand the different types of property insurance and what it provides and protects. What will you need, especially here in California where wildfires, earthquakes, flooding and other natural disasters are common?

“One of the most important things you can do as a rental property owner is to secure property insurance,” said Max Benz, founder and CEO of BankingGeek (bankinggeek.com), “This type of insurance will protect you financially if your property is damaged or destroyed by a natural disaster or other event. It will also provide coverage if your renter suffers an injury on the property. In addition, property insurance can help you to avoid liability in the event that someone is injured on your property and sues you. As you can see, property insurance is an essential part of being a responsible rental property owner. Make sure you secure adequate coverage for your property before renting it out to renters.”

According to Daniel Barrett, CEO of Adwords, a Google Partner agency that works with real estate investors, “A typical property insurance policy will include coverage for property damage resulting from fire, smoke, and windstorms, personal property loss due to theft or vandalism, and liability protection against accidents on your rental property (including lawsuits filed by renters).”

He added, “There are also other types of coverage that can be added onto a basic policy, such as replacement cost coverage (which covers the cost to replace your property with new materials rather than paying out a depreciated amount), additional living expenses (which provide money for temporary housing if you need to relocate due to damage on your rental property), and more.”

Property investors typically use two types of insurance policies: property or rental dwelling policy or business and commercial packages. The dwelling policy covers insurance on a single-family home up to four units. It can also cover regular rentals and short-term rentals (e.g., seasonal or vacation properties).

“These cover everything from the dwelling’s structure to the property owner’s appliances, loss of rent, other structures on the premises, and liability for premises specific to something like invasion of privacy or slip-and-fall cases,” explained William Lemmon, owner and agency principal for Broadway Insurance Services based in Los Angeles. “Similar to the property owner policy, there are rental condo policies that are set up in the same specific manner, except covering the condo unit inside only. These policies cover all-perils loss unless excluded. Commonly covered losses are plumbing bursts and water damage, fire, smoke, vandalism, or physical damage from trees. The most common exclusions are earthquakes, floods, war, and wear and tear.”

“One of the most important things you can do as a rental property owner is to secure property insurance...”

Business and commercial packages cover rental properties with five units or more or commercial renters. “They generally cover the same criteria as before but are arranged a little bit differently,” said Lemmon. “Covering the building, the property owner’s personal property (if any), loss of business income or rents, and general liability, which is typically set at a higher amount than personal policies. Practically the same similarity on covered perils and exclusions as the property owner and rental dwellings.

“There are other specific property policies like earthquake and flood that can also be purchased in line with all of the above, which normally follow the approximate limits as stated above, but only cover the one specific peril of loss only.”

As noted, property policies that cover earthquakes and floods typically fall under what is considered structure insurance. Here in California, structure insurance offers protection to the house or apartment or business complex. “Structure insurance will pay for damage to your rental’s structure and exterior. It will also cover damage to flooring and built-in interior features if a covered event causes damage,” said Melanie Musson, an insurance expert with Clearinsurance.com. She has experience in California hazards and law. She added, “Loss-of-use insurance will cover your lost income if your rental unit is uninhabitable following a covered event. Earthquake insurance is a policy that’s appropriate for much of California. It’s an additional policy or rider, and it covers damage from an earthquake that standard insurance does not cover.”

CHOOSING A LEGITIMATE INSURANCE PROVIDER

As property owners go to purchase insurance, it’s important to select an insurance company that will meet your needs and avoid low-cost providers whose coverage isn’t adequate or even scammers. “Be leery of companies that approach you following a natural disaster,” advised Musson. “They’ll likely want you to sign repairs over to them and allow them to work directly with your insurer. It may seem convenient, but this situation is often associated with insurance scams.”

Marina Vaamonde, owner and founder of HouseCashin based in Houston, Texas, said, “Always meet with your insurance agent. Moreover, look up their agent number online and check with the Better Business Bureau to verify their legitimacy.”

Not all insurance companies are created equal. Start by researching companies that specialize in property owner policies. “You need a specific type of coverage, and companies that deal with your situation every day can help you find the best policy for your needs,” said Musson. “Compare premiums and deductibles. Property owners with many properties may want to choose a higher deductible because it would be better for them to pay for some costs out of pocket instead of filing a claim because the premiums could increase following a claim.”

Avoid agents that don’t specialize in or typically write business policies that don’t fall in line with rentals and/ or commercial rental properties. These agents don’t always have the expertise you need. “This will lead to many misunderstandings and likely just a lack of variety when it comes to your needs,” said Lemmon. “Agents that specialize have the markets and know-how to find solutions you’re going to need with minimum back and forth.”

When it comes to cost, cheaper isn’t always better, which is not to suggest you shouldn’t search for an affordable rate. Just don’t default to the lowest price. “Without question, the lower price is never always the best answer,” said Lemmon. “It could very well be, but, there are so many different criteria that need to be met first. This should never be the end-all reason to purchase insurance or go with a certain agent. As a buyer, you’ll find yourself spending more time dealing with comparing insurance policies rather than working on your actual property business. The wiser choice as an investor would be to spend more time finding the better agent and using that agent for what they’re good at.”

Michelle Gamble is the editor of Rental Housing Magazine.