10 Things You Should Check for in Home and Property Insurance Policies
Home and property insurance policies can be confusing if you don't know what to look for — that's why it's important to start with the basics.
Real estate investing is risky enough even before you consider the typical challenges of owning a property. If you are planning on adding to your investment portfolio, here are 10 things you should check for in your home and property insurance policies.
Also referred to as rental property insurance, this is a quick way to bundle almost every type of insurance you need in one package. It covers:
- Damage to your property by tenants
- Damage to any detached buildings or equipment
Landlord insurance may not cover things like floods or construction expenses, and it does not always cover lost income due to gaps in renters. Read the fine print to see if your policy includes guaranteed rental coverage. In general, it provides fairly comprehensive coverage and is a good policy to start with if you only have one property.
This is a type of “slip-and-fall” coverage that pays for things like:
- Injury on the property
- Hospital or rehab bills for an injury that occurs at the property
- Lawsuits against the landlord
Short-term rentals and commercial properties need this type of insurance to protect against issues that might arise should someone be injured on their property.
Fire and Hazard Insurance
Unless you purchased your property in cash, chances are good your mortgage requires fire and hazard insurance. This may also cover things like theft and storm damage, but make sure to insure your property for its replacement cost — not just its cash value at the time you purchase coverage.
Even if you’ve used cash toward a new property to offset capital gains tax from the sale of another home, it’s important to protect your investment.
Water and Sewer Line
Investors with apartment rental properties, this one’s especially important for you. Most cities and towns cover water and sewer lines only to your property. The rest is the responsibility of the property owner. Damage to these can occur as a result of tree roots breaking pipes underground, or water and sewer lines may be blocked or broken by misuse on the part of tenants.
Either way, the resulting water damage repairs and line replacement can easily reach tens of thousands of dollars.
If you have contractors or other people working at your property, workers’ comp covers any type of accident that happens while they are on the job. This differs from liability insurance in that it is specific to injuries that happen to employees while at work (and any lawsuits that might be brought as a result).
If you are an investor who’s renovating and flipping or renting distressed properties, builder’s risk is helpful property insurance to have. It protects against property damage, injuries to workers, and vandalism at the site. This is best for projects that will take 60 days or longer, as these things are not generally covered by landlord insurance even if you plan on renting a rehab out.
General Contractor Insurance
If you’ve reached the point where you are managing your own construction jobs and hiring subcontractors for your property rehabs, consider general contractor insurance. This covers things like delays and other common emergency expenses.
Not all properties are located in a flood zone, but too many property owners assume their standard policy includes flood damage without even checking if they need it. Most policies don’t cover flood damage. Check with the Federal Emergency Management Agency (FEMA) flood zone maps to see if your investment is in a flood zone — then add flood insurance if necessary.
Loss of Income
If you are unable to rent a property due to fire or other property damage, loss of income insurance can help. This does not generally cover normal lapses in rental periods. It is associated with a specific event or circumstance.
When your coverage limits are not enough for you to feel comfortable, taking out an additional umbrella policy is a good move. This tax-deductible part of real estate investing helps close the gaps in coverage when a claim exceeds a standard insurance policy’s limits.
Home and Property Insurance Pitfalls
When looking for the best home and property insurance policies as a real estate investor, there’s a few things you should avoid, including:
- Treating it like your own home insurance policy
- Underinsuring your investment and crossing your fingers
- Waiting to insure a rehab until it’s done
- Setting a high deductible to save money
These actions can have catastrophic consequences if you find yourself short of cash with a damaged property that doesn’t have adequate insurance. Plan for insurance as part of your regular expenses as an investor, and you won’t be caught short if an emergency occurs.
Luke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and more.