Deal & New For People: rental property

Thursday, April 10, 2008

A few thoughts on PROPERLY insuring your Rental Property

So, you're going to be a landlord! Since it's nearly ALWAYS a good time to buy real estate, you're making an excellent move. The long-term value of real estate from an investment standpoint is, in my humble opinion, the best leverage available.

Now that you've taken that step, it's important to get the right kind of insurance to protect not only your investment from the ravages of fire, vandalism, smoke, and broken water pipes, but also protection from the greedy hands of your tenants should they sustain an injury on your property in the form of Liability Coverage.

There's usually 4 primary areas of coverage you want to explore when looking into insurance for your property that you rent to others. (doesn't matter if it's a single family dwelling, duplex, multi-plex or a condo.

Building Coverage - Protection for the structure.
Personal Property Coverage - Protection for the contents of the unit that you own. This includes refrigerator and window treatments primarily. It would also include any other non-building type items that you own and are stored or used in the rented dwelling.
Loss of Rents Coverage - This pays your fair market rent value to you whenever your property is rendered uninhabitable from a covered loss.
Liability Coverage - This is that important coverage that protects you when tenants or their guests are injured or sustain some "other kind" of "loss" that they think is YOUR FAULT and they come after you with vengence and an attorney!

There's other coverages to consider like Medical Payments (usually included), Flood and Earthquake Coverage(BOTH usually NOT included).

Ok so now you at least have a place to start. Let's take a quick look at each one to give you just a little guidance.

BUILDING COVERAGE
This coverage is identical to homeowners insurance in that it protects the building against physical loss from perils like fire, smoke, vandalism, water damage from broken appliances and pipes, falling trees, automobiles, etc. It's usually written on an ALL RISK basis. Which is fancy insurance talk that simply means EVERYTHING except certain listed exclusions is covered. In other words, if something happens to the structure and it's NOT listed in the exclusions... IT'S COVERED!

You'll want to get enough coverage here to rebuild the structure at current construction costs. Ask your agent of a general contractor what current constructions costs would be for a place like yours. For a more complete discussion, read HOW MUCH HOMEOWNERS INSURANCE DO YOU REALLY NEED (the section on the building coverage walks you thru the same thinking you'll need to determine coverage on your rented property.)

PERSONAL PROPERTY COVERAGE
This portion provides coverage for items that you likely brought to the property. (Exception here might be a refrigerator or window treatments) Rule of thumb is that if it's permanently part of the structure it's a building item, if not, it's likely a personal property item. Most window treatment items (curtains, blinds, curtain rods) will be personal property (check with your agent to be sure) Refrigerator is personal property. An installed dishwasher is likely a building item.

Usually you don't need too much coverage here -- $2000 to $5000 is usually enough, but add your stuff up to be sure.

LOSS OF RENTS COVERAGE
This is important to provide a consistent flow of income should you sustain damage to the property that renders it uninhabitable for a period of time. Policies can pay for up to 12 or 24 mos or some offer an indefinite period of time. Usually it's just for a short time like a few days or a week or two.

LIABILITY COVERAGE
This could be one of the most important decisions you make regarding your rental property insurance. My advice is to think of $1 Milliion as a minimum. The difference between $300,000 and $1 million is likely less than $100 per year ($8.00 per MONTH) Beleive me, a WISE investment in the protection of EVERYTHING you own. Liability losses can be wide ranging and EXTREMELY varied in nature.

Here's a quick story about one...

Just this year a policyholder called me and told me that they were being sued because their tenant's girlfriend accidentally let the tenant's dog out of the back yard. The dog made a beeline across the street and kicked the stuffing out of the neighbor�s dog. The landlord (NOT the tenant or the girlfriend) was being sued by the neighbor for veterinarian bills that exceeded $3000 and for mental anguish, stress, and� well, you know the drill. Fortunately my policyholder had not only their Rental Dwelling Insurance in place but also a $1 Million Liability Umbrella standing between this crazy neighbor and everything they owned. Without that, this could have been their problem�

They could have been paying off this �little problem� for years. They could have risked everything they own in addition to their FUTURE EARNINGS by not having the foresight to get adequate Rental Dwelling Insurance and a LIABILITY UMBRELLA policy.

You can insure your rental property, your personal property and your liability exposure in one simple policy.

Be sure to take your time and spend a few minutes in the chaos of the transaction to talk with your insurance professional about these important coverages.

You can always call or email me if you have any questions.