Rental Property Insurance: Tips & Advice
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- Опубликовано: 6 авг 2024
- Whether you’ve got a tiny rental next door to your home or a portfolio of 200 properties, understanding insurance and how it does and doesn’t protect your assets is key.
Here’s an overview:
THE THINGS YOUR PROTECTING
As a property owner, there are three primary things your insurance policy should protect:
PROPERTY COVERAGE
The most obvious coverage is for the structure itself. If something bad happens to your investment property it’s value is diminished. That could be a total loss like a fire or tornado leveling the structure. It could also be a partial loss like a burst pipe causing water damage to your wood floors.
This is listed as DWELLING coverage on your insurance policy.
There is very limited PERSONAL PROPERTY coverage on a Dwelling owner’s policy. This is because you don’t usually have belongings in the house. The personal property of your renter is NOT covered under your insurance policy. This is one reason for renters to have their own RENTER’S INSURANCE POLICY.
LIABILITY COVERAGE
The is coverage for bad things that happen to other people because of you or your property. Common examples are a person falling down the stairs, tripping on your sidewalk, or being injured by faulty construction.
The renters in your property are the most likely to experience these things. That’s why most rental contracts have “Hold Harmless” clauses. This is something you should talk to a lawyer about when creating your rental contract.
The second group of people to potentially experience injuries on your property are the friends and family of your renters. This is the most important reason to REQUIRE TENANTS TO HAVE A RENTER’S POLICY. Liability on a renter’s policy would be first to respond and make you less likely to experience a liability claim.
BUSINESS INCOME COVERAGE
The last of the three major coverages protects the income that you receive from a property. If there is damage that requires a renter to move out for a period of time, you likely won’t receive rent payments. Business Income coverage replaces that lost income.
MARKET VALUE VS REPLACEMENT COST
The DWELLING COVERAGE is the maximum limit an insurance company would pay out for damage to your property. Many investors think this has something to do will how much your property is worth. That is incorrect. The Dwelling coverage is figured based on REPLACEMENT COST. Replacement Cost is the estimated amount it would actually cost to rebuild the structure. The figure includes contractors, wood, drywall, roofing, etc.
Sometimes Market Value and Replacement Cost are close. Other times they are significantly different. For example, let’s say you buy a 2000 square foot house for $100,000. The insurance company will likely want to insure it for around $250,000 ($125/square foot). You may feel like the insurance company is insuring it for way too much but the reality is you bought the house for much less than it would cost to rebuild. Market Value & Replacement Cost are not the same thing.
COINSURANCE CLAUSE
You might say, “I don’t care. I bought the house for $100,000, let’s insure it for $100,000.” You wouldn’t be the first person to think that. Maybe you don’t even care if $100,000 is all you’d get in a claim. But actually, you wouldn’t even get that.
Insurance companies have a rule to combat underinsuring a house and it’s called the COINSURANCE CLAUSE.
In a claim, EVEN A SMALL ONE, the company will assess whether you’re dwelling coverage properly insures the house. If it doesn’t, a formula is used that diminishes the claim payout in direct relation to how much you underinsured.
In the above example, if the house totally burned down you’d get about $40,000.
PERILS INSURED AGAINST
Insurance coverage is based on the bad thing that happened (occurrence). Different policies list different events that are (or aren’t covered). Here’s the 3 primary options:
o BASIC (DP1) - Covers 11 “Named Perils” including lighting, fire, smoke, wind, hail, and more.
o BROAD (DP2) - Covers 16 “Named Perils” including everything from Basic plus burst pipes, weight of ice and snow, and more
o SPECIAL (DP3) - The best kind. Shifts from what is covered to what ISN’T covered. If a bad thing that happens isn’t specifically excluded it’s covered.
That’s it! What are your questions? Please ask them in the comments section below!!
Learn more about us at:
Our Site - www.shineinsurance.com
Our Blog - www.shineinsure.com/blog
Our Podcast - www.scratchentrepreneur.com
Our Course - www.newhomebuyersguide.net
Liked and Subbed for more of that great real estate content. I love the content quality! Can't wait to see more!
super informative video. thanks for sharing I know now how to insure my first property and what to look for!!
SOOO Glad this video was helpful!
Great video!
Simple but informative video. Thanks for sharing.
Glad it was helpful!
Thank you for the video.
Thank you for this
unexpectedly ....i learn something from this video,,thanks a lot
HA! Were you just watching because the title was so compelling? :)
Hi thank you for explaining ☺
Do you cover single family home rentals property?
Great info bro! What policy would you recommend for airBnb owners?
If I have multiple rental properties (2) in a single member Series LLC do I need to have a landlord policy for each property, or can a single policy provide coverage for both without interfering with the asset protection the LLC provides?
Hey I just say a new charge on top of my rent it says liability to landlord insurance! Can they just start charging me for this? After going back and forth with them to try to get the black mold growing around all of our vents some one did come out and “test” it but we’ve heard nothing back from them... now this. Idk.
What about a triplex. Where the owner lives in one unit and rents out the other 2 units. I was told I have to have a DP3 but I've read they have How is cheaper and is suitable for my situation. Any advice would be greatly appreciated 👍🏼
Thank you !
For sure!
What if I already have Home insurance on my home before I rent it out?
Hi Jeremy, I have a property in Lava zone 2 in Hawaii. I was going to sell it , but due to the Lava flow about 20 miles away, I want to rent it. Unfortunately a lot of good people lost homes.
I was wondering if I can just get liability insurance. Just in case somebody gets hurt on the property. I think fire insurance is out of the question right now although I do have full coverage on the house until October. Fortunately the Lava is not coming my way LOL.
I did subscribe and if you don't know or don't answer don't worry about it. Aloha.
I enjoyed the video.
Thank you,
George
kinggeorgewashington, so sorry to hear that. Sending good vibes to you and all the folks in your area.
I’m not an agent in Hawaii but I would think that liability coverage would be available. This is definitely something that some insurance companies do. Natural disasters can scare insurance companies off and that may be what’s happening to you but a local agent should have a line on at least liability coverage and maybe property coverage with the lava peril excluded.
Best of luck and hope the surfs up at all of the right times for you!
Let's say the tenant is getting evicted. Doors are missing, maybe even windows. IE a distructive tennant. What insurance would cover that.
Great question. This would be defined as vandalism and should be covered on most policies. Some policies do EXCLUDE vandalism though so it's good to check. Great questions nd thank for watching.
Thanks so much for the video it is very straightforward and easy to understand. I have a general question about insuring a rental property.
Are there some cases in which insuring a rental property may not be worth it?
For example if the costs of bringing the structure up to code, or if the property was acquired at a very low price and therefore making the monthly payments for insurance may not be worth it?
I would have liked to have heard more about deductibles which is a big part of insurance
be careful with insurance companies like state farm who has taken one claim and made it into 3 claims making my deductible 9600 hundred dollars rather than the 3200 hundred dollars it should be screwed again
maybe someone could do a video on deductibles as this is a big part of insurance
Sounds like a per building deductible instead of a per occurrence deductible. That does stink but it's really common. Yes, we need to create a video on deductibles. It is in the cue for sure.
I'm told that my one policy from state fram is a per claim landlord from 3 policy with a percentage deductible set at 1% or ( 3200 HUNDRED DOLLAR deductible ) of which i submitted a claim of vandalism by the tenant at the tune of 14000 hundred thousand dollars by contractors bid but state farm says that i have no claim because the tenant when asked what the date of the damages where she stated a date prior to the date my state farm policy was ineffective while i on the other hand the date i use is the date of which i found the damages not when the tenant claims they had happened keep in mind now this is a landlord's policy.... meaning if it is my way the policy is good
Because as a landlord we don't inspect are property every day so it should be the date the landlord discovers the damages so state farm comes back to me with if it was my way than i would have to pay on a per - claim bases meaning if you are still with me this of course i don't believe that this is how it is because that would mean i would have to pay a deductible for each event meaning 3200 now becomes 9600 hundred dollars that state farm says that i must pay before they kick in there part of the claim so now my out of pocket expense would be 9600 hundred dollars Bullshit i say
Hello question I was renting a small studio behind landlord home I fail down the stairs I broke T12 bone few days in hospital 3 months no work I told him if he has insurance to make a claim he said no either way it won’t cover it . I told him before about the stairs because the stairs are narrow very straight he put bars to hold but stepping to those steps where scary he said the time and money he didn’t had .can I sue him if he has homeowners insurance
I see i have put in a post on the deductibles once already but you sine insurance has decided to not comment why
Sorry abt that Roger. Just responded. Have a great one!
Right
Is the landlords responsible for paying water bill and garbage pick. In apartment renter never pay these bills.
Do you know of a insurance compagnie in Canada (quebec) for student housing?
What about condos/townhomes that have Master policies? Would the dwelling coverage for the condo owner be less compared to a regular single family home?
Great questions. Condos usually do have an association policy that covers some amount of the exterior of the building. Where the association policy stops and your condo policy starts depends on the covenants and bylaws of your association. Somewhere in there it spells out what is covered where. The traditional split is "Studs out" is covered by the association and "drywall in" is you. That varies widely though. Once you know which part you need to cover, work with your insurance advisor to come up with a replacement cost for that portion of the condo. There you have it!
Let us know what your covenants and bylaws say.
we were denied because the house sold for less than 1/2 of what it is worth
How would I get a real assessment of what it would cost to replace the building per square foot? My insurance agent is saying it would cost $150, l suspect it would be lower since it's not in a great place and made with cheaper material, nothing fancy. I don't know of a builder who would give me a quote on replacing the building. How would I argue to lower this square foot replacement price?
If they're SFRs, this is probably on target. Do you know any builders who would just stand outside with you and say, " yeah, it would probably be $XXX"? Most conversations will builders are sobering.
The other thing you can do is ask if you could review the RCE (Replacement Cost Estimate). That can be a way to see where the number comes from. Your insurance agent should have one to check out.
Finally, most commercial policies do have some flexibility. If it's a personal policy though, many companies use algorithm that can't be adjusted. So your agent may not have any freedom to move.
Hope this helps.
Hi , my property coverage quote for a $242,000.00 dwelling was a
$1000.00 AOP deductible. I know this is not enough coverage so I will
speak with an agent to increase that deductible to about $2500.00 or
higher. My concern is windstorm and earthquake is quoted at 5% each with
a con-insurance of 80% is this enough?
Earthquake & Windstorm deductibles are commonly very high. Especially in high risk areas. In Florida for example, a 2% windstorm deductible is about the lowest you'll see. So it really depends on where you live. Don't bother trying to get the earthquake deductible down. If you can get the windstorm deductible lower though that would be really good. A $10,000 deductible mean basically no coverage at all for your roof.
What happens when you change insurance from homeowners insurance to investor insurance. Does the interest rate of your mortgage change? Will that be affected in anyway?
Nothing should change about your mortgage. You should definitely contact your insurance agent though. The policy needs to be changed from a homeowners policy to an annual tenant policy. Hope this helps.
This a good question
Hi Jeremy:
I like your video, thank you!
Have question, my tenant water flooded from laundry washer machine to bathroom and a bedroom, of course within laundry room. This should be tenant’s responsibility or I should be claim to my insurance, this happened 2 weeks ago, I didn’t see any damage so far but tenant keep ask me to dry out and clean the mildew smell ( she said has smell , I did not smell anything) and I bought a wet/dry machine to dry out the each area has been flooded, I should be talk to me insurance company for my responsibility? Thank you!
Qinghong Cheng, the #1 thing to focus on is the dry out and avoidance of mold or mildew. The current issue is tiny compared to a tenant claiming they have health issues because of mold or mildew that resulted from the water not being properly cleaned up. You need a relationship with a water remediation company. They’re not cheap but they will measure remaining moisture, dry it out, and confirm when there is no moisture left. This approach virtually guarantees that your tenant can’t say you didn’t do everything possible to address the situation.
To answer your actual question, yes, you can file a claim on this water loss even though the tenant caused the issue. However, be careful filing a claim for less than $1000-1500. Especially if you have multiple properties, small claims can come back to bit you.
Jeremy, please help answer my question. I discover mold after I close on the house. The sellers did not provide a disclosure by stating they have never lived in the property. So far, the repair cost is over $25,000. I filed a claim two weeks after closing, and the insurance company denied it as pre-existing condition. Is that a good reason for denial?
Unfortunately, yes. Insurance companies only provide coverage for damage that happened during the policy term. The prior owner could file a claim on her insurance policy but she's unlikely to be willing to do so. Most home purchases are "As is" so your basically accepting the state of the home with it's existing flaws. A real estate lawyer may see a case for the seller illegally excluding knowledge of this from the sellers disclosure but knowledge of mold would be pretty though to prove.
This won't make you feel any better but mold damage is excluded from many insurance policies anyway. The best companies do have coverage but, even if the mold happened during your policy term, it might not be covered. You should make sure your policy does have mold coverage for damage that happen during the policy term. Anyone reading this comment should ask their agent about that as well.
best bet is to hire an attorney who may file a suit against the previous owner for not including it in the disclosure if you can prove it was visible
How much liability insurance should a duplex have on it 100,000 $300,000 with an umbrella without an umbrella should one unit or one house be put into an LLC?
We suggest a base of $1M. Some companies only offer $500k as their highest though. You can add an umbrella over the top if you want more. One rule of thumb is to review the assets owned by the entity in question. Always have at least enough coverage to match the assets.
Yea yea but you don't tell people what options are available when insurance companies like state farm refuse to pay on a rental property claim
I live in Minnesota and if you know where I can get some help without spending a fortune i would like to know where to turn thanks Roger B
I see you mention 2500 hundred dollars as a good deductible
But that can back fire when you submit a small claim when the insurance company like state farm takes a single claim and tells you that you must pay a deductible for each event
that can add up to a really big out of pocket expense
My case in point i submitted a claim of vandalism by the tenant s in the amount of 14000 thousand dollars which in my opinion this is one claim but my insurance company state farm has told me that i must pay a deductible for each event so my deductible of 3200 hundred dollars was going to be now 9600 hundred dollars because they took my one claim and broke it into 3 claims with three separate deductibles so my out of pocket expense would be 9600 hundred dollars on a 14000 thousand dollar claim now who as a landlord has 9600 hundred dollars set aside for repairs or even a higher amount depending on your deductible or on your insurance company if they decide to take a single claim and make it into more than 3 claims. and the other part is not only am i suppose to have all this money set aside for repairs I'm also out of rent money coming in as it is uninhabitable to live in with the damages and when your insurance company does this there is no where to go to for help that will not cost a fortune
I wish I could find a video that explains how to get a claim approved when the insurance companies like state farm pull this type of behavior
It seems clear that the insurance companies are free to do as they please i feel that this type of practice should not be allowed
If anyone knows where i could go for some help i sure would appreciate it Thanks Roger
Hi Jeremy .... I rent a house in upstate ny and have lived here for 5 years... During this time the landlord has been promising to fix the bad drainage situation in our driveway .... .Two days ago i was bringing the garbage cans in and all the sudden the ground underneath me disintegrated and i fell 6-8 feet into a sinkhole ,,,, Emergency services needed to rescue me from the hole and took me to the er .. i strained my back knee wrist ect .. The ambulance and er bill are prolly going to be $2500 ... who is responsible for this bill ... wouldn't it be the owner because they did nothing to fix the water problems that they were well aware of ..... they told me they were going to install french drain when we brought it to their attention 5 years ago...... Any help would be appreciated.... THANK YOU
Charlie Buckets, very sorry this happened to you. We hope you get better quickly.
The negligence of the landlord certainly seems to be a factor. Here are some things you can do:
1. Ask your landlord to file a claim on his/her insurance. Based on your description that may not happen simply because your landlord won’t do it.
2. You file a claim on your landlords insurance>> if you know the insurance company and policy number, you can call them directly.
3. File the medical bills through your health insurance. They may or may not choose to go after your landlord for the money.
4. As a last resort you could hire a personal injury attorney but that has the potential to create more problems than it solves.
Hope that helps!
Thank you for your video. My landlord has maintenance work to be completed in my unit do to a leak from a tenant above my unit. My landlord has advised that I will have to vacate my unit for a few days while the work is to be performed. Is he responsible to pay for the out of pocket expenses (lodging & food) while my unit is uninhabitable? He is telling me I need to file a claim with my Renters Insurance. Thank you in advance.
Great question. Ask your landlord for the insurance company adjuster's contact info for the water damage claim. Call them and ask about coverage. Depending on the policy your landlord purchased, there can be coverage for you. You can also check your lease. There should be a clear description of what happens when to unit is unable to be occupied. You can also contact your renters insurance company. But you want to be careful with that. A claim on your record for say $200 could have a significant effect if you go to buy homeowners insurance next year. Just be careful not to make a tiny claim on your own insurance.
Why is tenant property insurance so much higher then owner occupied insurance?
Such a great question!
The short answer is that rentals have higher claim costs than homeowners.
The longer answer is that when the owner occupies a home they are much more likely to address problems immediately. This can avoid claims or make them smaller. A tenant is more likely to ignore an issue until the damage is much more widespread. This can cause much bigger claims.
You didn't ask about vacant homes but they are the most expensive to insure. That's because there is no one there to notice a small issue. For this reason the claims tend to be a lot bigger.
Thanks for asking!
What if the home is fully furnished?
Great question. The key here is to make sure you have enough Personal Property coverage on your policy. For most rentals you don't need much because the belongs inside the home are not yours. If it's full furnished though you want to increase that coverage.
I need insurance for my rental property, where should I apply
You should ask this same question to ChatGPT. It will tell you.
Is there insurance for investors where your tenants aren't paying their rent?
Does this cover tenant vandalism?
Added this to our list of videos to create. Bottom line though, If your policy has Vandalism coverage it could be a tenant or a total stranger that does the vandalizing. Both would be covered.
Yes good question
I have damage from the tenant which i claimed as vandalism state farm came back and said that the damages where wear and tear - how does holes in the doors , walls and carpet become normal wear and tear and on top of that state farm says even if at was vandalism then i would have to pay a deductible for each event which would make my out of pocket expense 9600 hundred dollars rather than 3200 hundred dollars i disagree with this because it should be treated as one claim in my opinion
i have asked state farm to show me where this is in the policy
But they continue to not answer the question
and this seams to be because there is no where to turn to for help so insurance companies like state farm can get away with almost anything
my whole claim was 14000 thousand dollars and state farm says i should pay 9600 hundred dollars of that and they should pay 4400 hundred dollars what a joke
pay good money for insurance just to get screwed in the end thanks state farm
I see you wish to not address this issue
This fellow is nice enough but without a doubt as he said he is an agent and DID NOT tell us about how to tune our coverage and policy premium costs via;
- ACV actual coverage value; IE you buy a rental for $100k, the agents replacement cost calculator is extremely rigged for insane costs comes up with replacement cost at $200k. Real example. This is crazy, yoiur $100k included $20k for land, the insurance calc for replacement cost BSs us owners with a number that we think may be reasonable, but the $200k is just for the structure. No way a 1400sqft simple house takes $200k to rebuild. I go with ACV at 80% of zestimate.
- Deductable he DID give good advice about going as high as possible $5k at least. But if you have a bank loan they want less then 3% deductable which for $100k house means $2500 deductable.
- Liability get the highest they offer.
- This is big; there are insurance co's that do not inspect. Its true, some who cater to landlords exclusively do not inspect!!! If your ins co inspects and mails you a Drop Letter, dump those guys and find a carrier that does not inspect. The national brands are tuned for Occupants not landlords. In the end I predict you'll move all your rentals to a "blanket" style insurer who is tuned for big time landlords. No inspection, monthly ACH auto billing etc all the conviences that running a real business needs. American Family offers $2M liability but the others are mainly a PIA.
- If you have a bunch of rentals in cash, no loan and escrow paying the insurance, you do not want a bunch of $1k insurance payments all coming out at the same month. Monthly auto debit is the way to go for a bunch of cash owned houses!!
I'm hearing from new landlords buying rentals in my REIA that the national carriers are upping their new policy underwriting to much MUCH higher premiums. Your only recourse is to move from RCV replacement cost to ACV actual cost and YOU pick the insured amount. Drop loss of income (rent) and up deductable, but always max out their liability offered. Dump a carrier that does not offer $1M liability.
Insurance is not a take it or leave it number. Theres alot you can tune if you are only helped by the agent.... Today there's up to a 2x variance between carriers. Hard to believe one quoted: $1995, another $920.... Just crazy.
Hey Curt, Jeremy here. I agree with a lot of what you're saying... for the right investor.
The advice you offer here could be perfect for a savvy seasoned investor with a solid bank roll and a clear understanding of how insurance works. What you're suggesting is that the investor take more risk onto him/herself and pay less in insurance premium. That sounds great when looking at the bottom line but really hurts in a claim scenario. The person who buys the policy your suggesting has to understand that and be willing to take the risk.
I love that you don't suggest lower liability limits. Sometimes that can get mixed into this game and really burn someone.
Ultimately, I wouldn't make the suggestions you threw out to most people. BUT, I do work with some investors that have deep pockets and would rather take big risks than pay more in insurance premium. As long as they understand what they're doing, it may be right for them.
Which carrier do you recommend
I’m a renter. I have a homeowners/renters policy. I was robbed. Policy report. Several items stolen. I have outside claims adjuster coming Friday. Is there anything I should do? Anything I shouldn’t do?
Thanks so much.
#BUSINESSINCOMECOVERAGE 💵💵💵💵💵
Super key!
@@ShineInsurance I'm gonna be looking for $100,000 (SINGLE FAMILY RESIDENTIAL) real estates to be used as rentals #💵💵,💵💵💵... That $10,000 a month Sounds about right to make my $100,000 investment back in 1 year (& have $20,000 extra to sit on), then I can buy another $100,000 to buy another 1every year... Now if I can just come up wit $100,000!!🤔😏😐🙄
I just need a $1 million house because I googled the rent has to be around 1% of the houses value!!😐🙄
nothing on this is informative of how to save me money not make insurance people money so sad
Jesus Christ loves you
Ok.
Wow im told today that state farm says i should pay 9600 hundred dollars out of my pocket to fix tenant damages on a 14000 thousand dollar claim and not only that but I'm not how long i will be with out any rent money coming in while i find money and fix said damages as the tenant because of her choice to stop paying rent 8 mo.