Insurance is one of the most expensive components of having properties. In recent years the cost has gone through the roof, in some cases turning cash flowing properties into cash negative properties. This can include a personal home or investment property. Prior to getting into buying investment properties I used to just leave my insurance requirements in the hands of a broker. Just trusted at face value they knew what they were doing and were providing the right coverage.

This carried on right into when I owned a couple of rental properties. They sent the insurance that the bank required (which is really minimal).

Then it all changed at a real estate investor meeting. The guest speaker was a commercial real estate broker. Well when he spoke about the coverages that investors should consider I went into shock.

At the time I did not have sewer back up insurance, lost rental payment coverage, or many other coverage options he spoke about.

After that meeting I had a friend refer me to a proper commercial insurance agent, and the rest is history.

Over the next several years, I did have a sewer back up claim, plus a tenant sued for a slip and fall, which all went smooth based on my coverage.

Then when I needed it most I was glad to be covered. I had a house fire in my personal house (that has a rental component). The claim was for hundreds of thousands, and boy was I glad I had it insured as needed.

Now I ask many questions to my broker and we review our policies annually (if your broker is not doing this, I would recommend you change your broker).

I mean simple things like the high cost of building supplies could put you in a situation where you do not have your building insured for enough money.

Also, as investors, you need to get educated on the terminology (lingo) used in the business. I mean with the company my home is insured with these are some key coverages relating to water damage with adjustable limitations, that people do not think of until it is too late:

Sewer Back-up – Coverage in the event water backs up from the sewer system and flows into your home. Important coverage for your rental properties. This expands into areas such as toilets backing up leaking down below. Does not cover ground water or rising water table.

Overland Water – Coverage for water damage caused by lake/river, overflow, heavy rain or rapid snowmelt that enters your home from a point at or above the ground surface. Does not cover flood caused by waves, storm surge, ground water, landslides or rising water table.

Ground Water – Coverage for damage caused by water entering your home suddenly and accidently through a basement wall, foundation or floor or rising water table. Does not cover flood caused by waves or storm surge. Also does not cover damage caused by earth movement / landslides.

The reality is that each section or coverage has a breakdown like this. Other than reading the lengthy book of documents or becoming an insurance agent yourself, you need to find a knowledgeable insurance broker that understands your personal risk tolerance. That way you will always have the right coverage for the right price.

You also need to disclose your tenant profile to your insurance agent, I was surprised to learn recently that some insurance companies will not insure you if you rent to students. It is right in the policy. The insurance company may also want to know how many people will be occupying each unit.

If you have a regular home owners policy and you add a rental component (anything from renting a room, to adding an apartment) this will have a bearing on your insurance premium. Even though it is owner occupied, it still increases the risk.

Do not rely on your lender to tell you what you need. In most cases all you need for lenders is basic broad form fire insurance (which is basically no coverage compared to what is available).

Do not rely on your broker to tell you what you need. This is especially important recently since there are many large financial institutions that are getting into offering low priced insurance to the masses. They often want to quote the lowest price to gain your business, however, they could accidently short change you on coverage. Plus they have the added pressure that if they offer too much insurance some consumer advocacy organizations have complained that they are over selling.

I can’t speak for everyone, but I will say when it comes to coverage I tend to be on the conservative side and maybe over do it a bit (but it helps me sleep better at night).

I have been through sewer back ups, fire, theft, and getting sued, so I know the value of having proper insurance coverage.

Until next time,

Design your landlord experience,

Michael P Currie

Landlord By Design

For other amazing property management ideas, get a copy of my book right here.

Photo Credit goes to Rodnae Productions