Investment Property Insurance
Getting the Right Rental Property Insurance
Investment property insurance is the first thing you purchase when you invest in rental property. When owning rental property you want to make sure that you are covered against all hazards. You need first to own a landlord's policy. This type of rental
Insurance can protect you from loss of income if your property becomes unrentable due to fire or damage. Most policies do not cover normal wear and tear by a tenant but can protect you from major accidental damage.
Do not be tempted to just buy a homeowners policy. If the insurance company finds out that the property is not owner occupied they will not pay the claim. A landlords policy is slightly more expensive, but necessary. You need to shop around to find the best package for your needs. Some companies will provide a discount if they carry your homeowners policy as well as car policy.
Some investment property policies will be quite comprehensive and cover all matter of calamity, while others will just cover peril. That is, some major disaster such as a fire.You should also decide if you want the policy to pay actual cash value for the property or replacement value. The premiums will be higher for replacement value policies.
Another consideration for rental property insurance is flood insurance. You should know that most investment property insurance policies do not cover water damage due to flooding. If you are in an area that may flood, make sure that you get a flood insurance policy. The Federal Government is the only one foolish enough to issue this type of property insurance.
The final consideration for investment property insurance is to cover yourself against lawsuits. A rental property insurance policy does not do this and you must buy a policy from the Federal Government. Typically, you can buy what is called an "umbrella policy" which covers you against law suits filed against you wherever they occur - your home or your rental property. A $1,000,000 policy is the minimum liability policy you should purchase.
You can gain some additional protection by placing your property into an LLC or Corporation. However, it's never a bad idea to have an umbrella policy that is for at least as much as your net worth.
I also tell all renters that their property is not covered by my insurance policy and they should purchase renters insurance. Often, if you can prove that tenants have Rentors Insurance, then you may be able to recover your deductable if the tenants caused the fire or water damage.
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