As a real estate investor, you must determine the types of insurance and coverage needed for your investment properties. The goal of insurance is to protect your home and its possessions from damage or theft, including rebuilding from total loss. If you have a mortgage on your home, many lenders require your coverage to equal 100% of the home replacement cost.
Another factor to consider when shopping for homeowners insurance is coverage for the items inside your home. There are tiers of coverage available depending on the replacement cost of items in your home. In some cases, your insurance agent will offer additional coverage for expensive items such as jewelry or artwork. It is important to talk to your insurance agent and make sure that you fully understand what your policy covers.
For rental properties, an insurance policy can provide income in the event of temporary vacancy losses. As there is a slew of insurance policies for any situation, it’s important to have a solid grasp on each one. Following are six common types of insurance for investment properties:
When a homebuyer has less than a 20% down payment to buy a house, they will typically pay mortgage insurance. The purpose of this type of insurance is to protect the lender in the event of a default on the loan. If a loan defaults, the lender must foreclose and then resell the house, typically at a lower price than before. The insurance would then pay the lender for their loss on the loan.
A liability insurance provides policyholders with protection against claims resulting from accidents and injuries within your property. It will cover the legal costs and payouts for which the insured party was found legally liable. Because of the many responsibilities involved in being a landlord, this type of insurance can bring you peace of mind. For example, if you are found negligible for failing to properly maintain the rental home or advise the tenant of a potential risk, you could be saddled with thousands of dollars in legal and medical expenses.
If your investment property is under a standard homeowners insurance policy, flood damage is likely not included. To cover your home and its contents for flood damage, you must purchase a separate flood insurance policy. Costs for flood insurance vary based on how much coverage you purchase, what the policy covers, and your property’s flood risk. In some cases, you may be required to purchase flood insurance by the government or your mortgage lender.
Most flood insurance policies are offered through the National Flood Insurance Policy (NFIP). However, some policies are sold through private insurance companies. To purchase a NFIP policy, your community must participate in the program. Go here to see if your community participates.
Hazard insurance is a term used to describe the coverage that homeowners insurance provides for certain risks. It covers structural damages from theft, storms, and fire. Though homeowners insurance typically helps cover damage from hazards, real estate investors can add optional coverages or endorsements, such as water damage from water backup from sewers or drains.
This type of insurance combines different insurance coverages that landlords need. Landlord insurance policies will typically provide liability and defense coverages, loss of income insurance as well as protection from damages to the property. For example, in the event of damages caused from fire, this insurance policy will typically cover the expenses required to restore the rental home to its original state and the lost rent due to the damage.
Rent Guarantee Insurance
Unlike a rent loss insurance, a rent guarantee policy is intended to be used if tenants stop paying or skip out on rent. There are many reasons a tenant may fall behind on rent, from sudden unemployment to abandonment. This insurance type essentially prevents an income interruption by reimbursing the landlord.
Are you ready to invest in real estate and see the value it can provide? RLG would love to help you! Call us today to learn more.