How to Protect Your Home & Rental Property Assets with the Right Insurance Coverage
Single Family Dwellings
Landlord Insurance (also called hazard insurance) is essentially an insurance contract that covers the physical structure for most types of damage. Always purchase, when possible, the Broad or Special Form contracts. Coverage exclusions include (but are not limited to) damage caused by an Earthquake, a Flood, Wear & Tear, Mold, Animals (including rodents, birds, etc), War, and Illegal or Intentional acts.
The Hazard Insurance should be written to incorporate enough insurance to replace the structure following a devastating fire. Preferred policies include extra protection over and above the policy limits, called Extended Replacement Cost. Example: If a company provides 125% of the dwelling limit in order to replace the structure in the event of a total loss, a home insured at $200,000 actually has $250,000 of protection!
Hazard policies may provide Personal Property (rent-ready contents) and Loss of Rental Income protection for unattached property and rental income loss resulting from insured damages. This coverage is not automatic in all insurance policies, so ask for it and volunteer your rental income numbers to the insurance company.
A Landlord’s Policymust include Liability coverageto protect & defend you against Bodily Injury or Property Damage claims from another person, resulting from your ownership of the property and for which you may be held liable. We suggest a minimum of $500,000Landlord’s Liability protection. Be sure to verify that your policy includes coverage for dog bite claims (if your tenants have one) and Personal Injury protection for allegations of slander & wrongful eviction.
Some of you will move your properties to an LLC or other entities; be sure to advise your insurance agent once you do this and add the entity as an additional insured to your policy. And, if your property manager requires being named as an additional insured, also inform your agent.
Deductibles are a good thing and we recommend minimally a $2,500 deductible – $5,000 for 2- to 4-unit properties– on your insurance policy.
Condominiums / Town Homes
These are different from insuring single-family homes. Issues like Special vs Broad forms, Additional Insureds, LLCs, are the same. Yet, to insure the structure and your personal property is different. While the HOA’s CC&Rs usually insure only the exteriors, ask a few more questions about the levels of protection afforded to you by the CC&Rs, as your HOA may be different. Ex: Your HOA’s CC&Rs may allow coverage inside the unit.
Here is what you are not being insured for through the association:
- Protection for damage to your unit is limited through the HOA’s policies. You may need to insure interior improvements – perhaps everything inside the common wall. Make sure your realtor clarifies your insurance responsibilities or obtain at least $50,000 in protection; you must ask for this insurance coverage to get it.
- Loss of Rental Income due to damage to the premises; always ask for it and provide your estimated annual rental income to your insurance representatives.
- Your individual, Landlord’s Liability (including Personal Injury).
- Assessments resulting from inadequate insurance obtained by the association; we recommend $50,000 in protection.
- You may be responsible for a Deductible resulting from a claim arising out of your unit or the common area.
- You may be responsible for Damage to other units resulting from a legal liability for an event emanating from your unit.
How do you deal with the unknown of what you are responsible for in a Condo or Town Home insurance program? You have to ask a lot of questions of management. Here is a good question to ask the association:
- The water line, connected to my washing machine, broke and water ran everywhere. It caused damage to my unit and to the adjacent unit. The Damages included my floor, cabinets, walls, the floor and ceiling between the adjacent units, and of course there is damage to the common structure. What damages will be covered by the association’s insurance? What is my responsibility under the association’s policy, the CC&Rs, and the By-Laws?
Protection Issues for Dwellings & Condos
Depending your property’s location, you may want to be aware of the following coverage exclusions; if any of these exclusions could cause you sleepless nights or financial hardship, call us to discuss:
- Sinkhole or minesubsidence; excluded but endorsements are available.
- Wind Pools will provide Wind coverage, usually in coastal areas in the Gulf and Southeast where Wind & Hail is generally excluded under normal policy language for coastal and Tier 1 properties.
- Earthquake & Flood insurance policies are extra and excluded under regular property insurance policies.
- Vacant Properties (properties generally unoccupied for 30-60 days) are subject to limited or no protection for fire, vandalism and additional types of specific damage unless the policy is rewritten.
- Burst water pipes, causing home interior damage, is excluded in vacant properties from Day-1 of vacancy (tip: winterize them!).
- Water & Sewer Backup Damage coverage may be provided for loss caused by water which backs up through, or overflows from, a sewer, drain, sump, sump pump, or any system on the premises designated to remove subsurface water from the foundation area. This damage is excluded unless endorsed onto the policy.
- If you have any tenants to whom you are giving a break on their rent, for them to just do basic tasks for you on the property, this means that you have an employee and you need Workers Compensation Insurance. You may wish to rethink this.
Quick Tip 1: Critical: It is likely your loan will be sold to another lender within the first year of your closing on this loan for your property. Please be sure to let us know when and if this occurs so that we can update your policy accordingly. If this update is not provided to the insurance company, and if your loan is impounded, your renewal policy billing will be sent to the old lender which will not pay the bill, risking the cancellation of your insurance protection for this property.
Quick Tip 2: If you move or change your mailing address, you may not receive your renewal insurance documents. So, should that change of address occur, please be sure to provide us with this updated information! If you are paying the insurance premium, this becomes crucial to Insuring Your Success!
Other Levels of Protection
You may wish to add to your insurance coverage portfolio, as you grow your assets, other types of protection including increasing your Auto/Home insurance limits, adding Umbrella Insurance¸ and considering various means of protection against claims alleging Housing Discrimination.
(This is a general discussion of policies for Condominium Rental Properties. In most instances, this information is consistent from state to state; however, differences may occur. Therefore, this discussion of insurance policies is necessarily brief and is not to be interpreted as the final word about property insurance; please refer to your policy for a complete coverage review and always ask questions of your insurance agents to ensure proper protection)
An Umbrella Liability policy provides you with protection in addition to what we call your primary limits of coverage: It is a policy of additional insurance, generally written in increments of $1,000,000, in addition to your auto, home and rental insurance policies. The idea here is that rather than a claimant trying to put his hands in your pockets, you want him instead to go after the insurance company’s pocket!
What Does an Umbrella Liability Policy Cover?
This total coverage limit provides you with protection for severe claims for which you may become liable due to bodily injury or property damages to others and which are first covered under your primary limits (your first “layer”) of coverage. Basically, the Umbrella Policy kicks in when a claim exceeds this first layer of protection; it creates an additional layer of protection for claims that exceed those initial policy limits, including the cost of defense that ends when your initial policy’s limits are fully spent.
It is important to ensure that you do not have a gap in your layers of coverage. You must be sure that the limits of the primary policy (the first layer) end where the Umbrella Policy’s layer begins, without a gap in the middle. You want to have your auto, home, and rental insurance liability limits be high enough to flow directly into the umbrella’s layer of coverage.
Coverage Tip: Make sure all entities (you and any spouse, trust, or LLC) are listed on your primary and umbrella policies. Not all insurers will do this, and the coverage is not automatic. You must request this additional protection.
It is vital to remember that the Umbrella (Excess) Policy is basically an extension of your home, rental, and auto policies. Generally, Umbrella Policies will not cover actions outside of what the primary layer will cover. A good example of this is Tenant Discrimination actions: These will most likely not be covered by either the rental or (thus) the Umbrella Liability policy. Other policy options may be available for this protection.
What Do You Need to Do to Get an Umbrella Liability Policy?
You generally need primary limits on your auto policies of at least $250,000 per person/$500,000 per occurrence Bodily Injury, $100,000 Property Damage, and $300,000 on your home and rentals before you look to an Umbrella Policy. Then, ask your insurance agent to quote the coverage for you: It is just that simple!
What Does an Umbrella Liability Policy Cost?
You have 1 Residence, 4 Rentals, 2 Cars: The cost can be as low as $349 annually for an Umbrella Liability policy. This cost can be reduced even more if you package your Home, Auto, and Umbrella insurance with one company. The annual savings for the package could be as much as $100![Seldom will two Umbrella policies be the same (these are “non-standard policies. Therefore, this discussion of Umbrella insurance is necessarily brief and is not to be interpreted as the final word about Umbrella liability protection; please refer to your policy for complete coverage explanations and always ask questions of your insurance agent to ensure proper protection].