If one of your single-family properties caught fire last night, are you certain it is insured properly? If a spring storm blew the roof off of your 12-unit apartment building, would you have coverage for your loss-of-rents? Is your subject-to exposure protected? When it comes to insuring your investment properties, it is best to know what protection you have, or don’t have, before a claim! It is always nice to save a few dollars to add to your net income, but make sure you are aware, and more importantly, comfortable with your coverage levels and options.
ACV vs. Replacement Cost:
Make sure that you understand the difference between the two options. Also understand what a coinsurance penalty is, and how it may apply to your units. Every property, and property owner, for that matter, is different.
Your comfort with how these options affect your coverage is vital for you to make an educated decision on which option to carry per property. ACV may be “cheaper”, but could cost you when depreciation is applied to a claim.
Always carry as much liability protection as you can afford. As a minimum, you should carry $1,000,000 per occurrence. The larger your portfolio, the more liability protection you should have. Surprisingly, there is a minimal premium charge in most cases to double your protection. An umbrella policy is a method to provide liability coverage beyond the standard $1,000,000 or $2,000,000 limits. An umbrella is usually more cost-effective when you have more than one type of liability exposure.
Other Structures and Personal Property Coverages:
Don’t forget to protect against loss of detached structures, such as garages, sheds, and outbuildings. Some policies automatically include limits for these. Also remember to protect items in the units such as refrigerators, stoves, and window air conditioning units. Again, some policies may automatically provide built-in protection for these items.
Loss-of-rents, or Business Income Coverage:
This provides coverage for your lack of rental income, if your tenants are forced out of your property due to a covered loss. Some policies have built-in coverage to a certain time limit, such as 12 months. Other policies may have an endorsement you must purchase at specific levels of coverage. Either way, this is protection all property owners should have.
Simply stated, the higher your deductible, the lower your premium. If you are a multi-property owner, and your units are insured under separate policies, your deductible will apply, per location, if you are on what is typically referred to as a “package” or “blanket” policy, your deductible usually applies per occurrence. This could be a big difference, out-of-pocket, in the event of a local catastrophe such as a tornado.
Insuring the Proper Entity:
Make sure you protect YOUR (or your entity’s) interests. It is not worth sacrificing the proper protection to avoid the dreaded “due-on-sale” clause. The entity that owns the property should be the first-named insured. The first-named insured is the primary recipient of policy benefits. Additional insured and loss-payee endorsements may suffice in certain situations. However, as a general rule always aim to be the first-named on the insurance contract.
Always work with an Agent you can trust, regardless if they are “captive”, or “independent”. An Agent that is familiar with our business and willing to take the time and explain your protection needs for your situation, even if they can’t offer the policy themselves. We all like to save money, but you purchase insurance for protection. Make sure you understand how it works, before you need it!
Tim is an industry-recognized speaker, educator and real estate investor, with interests in single-family homes as well as commercial property. Tim has served as President/CEO of Norris & Associates Insurance Agency from 1991-2008. Tim resides in the Kansas City area with his wife, two daughters and a son. His interests include family, sports and aviation.