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Various Types Of Insurance For Real Estate Investments Protection
Having no insurance for your properties is like skiing without a helmet and protective gear. You have full confidence that you are going to get to end safe and sound. But you will also be aware that just a rock appearing at the wrong place at the wrong time can send you hurling into the air and sustain serious injuries. You might still suffer a few scratches here and there. But your helmet will protect your most important part. Insurance has to be an essential part of your planning right from the start. It forms a key element for your risk management strategies.
If you are to make an appointment with a sales agent, you will be the receiver of their story-telling sales pitches on how someone they knew almost went under if not for the timely help from insurance. And on top of that, there will not be an all-rounder type of policies that will protect from everything. You will then be presented with a list of 101 types of policies that cater to each little risk. Well, no one can stop you if you decide to go with 101 plans for protection. But essentially you need insurance to insure against 2 things. Property damage and liability.
You probably don’t need to get coverage for things like earthquakes when there has never been a recorded event in the area. But among all the things that insurance can financially protect you from, the most interesting on is on losses on lawsuits.
There are 3 levels of coverage available to you. Basic, broad, and special. And losses can be claimed in 2 ways. It will either be in actual cash value or the replacement cost. A claim on actual cash value will take depreciation into account while the replacement costs method will mean the total costs of replacing what you have lost.
The clear preference for any investor will be coverage on a replacement cost basis. But the drawback is that there will often be a dispute on the real costs of replacement. Both you, the contractor, and the adjustment officer usually have differences in the opinion. But should you really encounter such a dispute in future, get the contractor and adjuster to work things out between them. You will then only have to ensure that you get a replacement of similar value to what you lost.
You could also be thinking that your homeowner’s policy will be sufficient. But a landlord’s policy is more relevant now that you are controlling a rental property instead of using that as your home. The premium you can expect will depend on many factors including location, value, age, condition, safety features, etc. You will have to leave to your agent to work out the sums so as to save on insurance.
If you own many rental properties, decide whether to get a single policy that covers all of them with a high single coverage limit. It will be less of a hassle and could even get you a better rate.
As you can imagine, there will still a number of coverage gaps which exist. This is when you should take a look at getting an umbrella policy to cover most of the gaps. A good umbrella can even cover you for properties under your custody. Even better, it can pay for any legal judgements against you when they exceed the limits that you have already got on existing plans. Be aware that umbrella policies are meant to be bought for coverage higher than what you already have. They are also more affordable that other niche-type policies.
More types of relevant insurance policies to consider:
Worker’s compensation. If for example, the employees of your contractor gets into an accident in your property, you will be liable for losses. These can include lost wages, medical expenses, etc. A savvy investor will find a way to insist the contractor pays for this before the commencement of work.
Loss-of-rent. You can basically make a claim for rental income loss if your property is damaged to the point of untenable by events like fire. Check the list of exclusions before committing to one.
Loss assessment. If you own properties in condominiums or town houses, you will belong to a community. And these communities will have associations running the show for day-to-day stuff. They shortlist and hire, hire and fire, and basically make decisions for the management of the community. Should you or your property cause losses from property damages or injuries to others, you can expect to be sent a bill. It is called a loss assessment. It can also result from a mismanagement of funds where expenses exceed what is available in the operating account. The is a policy mean specially for this.
Deductible assessment. Since we have touched on loss assessment, it is only fitting to touch on deductible assessment as well. This occurs when the association has to make a claim on their master policy. And a deductible is required for the claim. Since you are the cause of the claim being made, the deductible bill is sent to you. You can get covered for a very low premium.
Title insurance. This is to protect your from losses incurred when there is a dispute on ownership due to details on the title.
Mortgage insurance. This is usually promoted by your lender as it protects them from losses on the mortgage they gave you.
Fidelity bonds. If you employee steals from you, this claim allows you to get reimbursements for the amounts lost.
Flood insurance. The government offers a program that will provide coverage as private insurers do not offer it. It is the National Flood Insurance Program (NFIP). Whether your area qualifies for the program depends on whether it is already a member of the program.
Sump pump insurance. This is related to flooding in that damages to property can be caused by water. But in this case it is water from below that you are worried about. A sump pump is used to protect your basement from water damage. If you don’t know, water is a very destructive force. If it goes down, it means that your property could be prone to an underground water attack. This policy covers you for damages due to sump pump failure.
Renter’s insurance. You are responsible for the structural damages to the property. But the personal belongings of your tenants have are their own responsibility. To avoid disputes that could arise in the future, inform your tenants on the benefits of such policies. You could even consider offering it to them for free as a freebie for signing up as your tenants. It cover the losses for personal belongings due to things like fire, water damage, and theft, etc.