Here are four critical insurance coverages that every real estate investor should consider.
Coverage #1 - Hazard Insurance
Protects against: Fire, Storms, & Theft
Just like placing a hazard or fire insurance policy on your own home is vitally important, be sure that any investment property that you own has proper coverages as well. Most real estate investors will secure a landlord policy that covers the structure of the home or building, as well as any interior property that the landlord owns.
Generally speaking, this type of policy doesn’t include any protection for the tenant’s belongings, so be sure to communicate this so that proper content insurance can be obtained.
Coverage #2 - Liability Insurance
Protects against: Medical Bills & Accident Lawsuits
Accidents happen, and protecting yourself & your investment from lawsuits and damages that could arise from an accident is important. When choosing a liability policy, talk to an insurance professional about limits that make sense for your area and for the type of property you will be insuring.
Keep in mind that liability insurance doesn’t usually cover negligence, so be sure that any hazards that you are aware of or become aware of are remedied quickly and completely.
Coverage #3 - Water Damage Insurance
Protects against: Water & Sewer Line Breaks or Backups
Because every real estate investment property has water flowing to and through it, every real estate investor should consider insuring against water damage. Water damage can ruin a beautiful property quickly, and can even require major remediations for things like mold. If it is bad enough, tenants may have to move out while repairs are happening.
Water damage policies usually don’t protect against flooding from the exterior, so be sure to discuss this water hazard separately if you are in an area that could have the potential for this issue.
Coverage #4 - Income Loss Insurance
Protects against: Loss of Rental Income from Extended Vacancies
Most real estate investors rely on the rents received from their investment property for something. Whether they use this money to pay mortgage payments on the property itself, or simply supplement their household income with it, it is important. By carrying loss of income insurance, an investor is confident that if the property becomes uninhabitable for an extended period of time, it won’t create nearly as much of a financial hardship for them.
While this type of insurance is quite important if the property becomes uninhabitable or unusable for a period of time, it typically doesn’t provide any payout if you evict a tenant or if they move out under normal circumstances.
Kim had always loved the idea of being a landlord. When she met with CleveDoesMore to create her financial roadmap, she wanted to be certain that real estate investing was part of her long term plan. After a few years of smart money moves, she finally realized her dream of owning a rental property!
Not only did the team at CleveDoesMore act as a financial strategist and carefully secure her mortgage, they also met with her to discuss practical aspects of real estate investing that she would need to know – like insurance coverages.
When an ice maker water line in her rental home began leaking a year and a half later, it went completely unnoticed by her tenant for several weeks. By the time the problem was seen and addressed, there was significant damage to the drywall, flooring, a few kitchen cabinets, and the basement ceiling below. What could have been a rather large financial setback was manageable, largely because Kim had wisely chosen to obtain water damage insurance.
Insurance, no matter what type you are referring to, is not something that you should just obtain and then forget about indefinitely. Set a yearly reminder, at minimum, to review your policies and coverage limits with your insurance agent or broker to ensure that what you had in place last year still makes sense and meets your needs.