With an investment property, it is easy to consider the insurance as merely a cost more than a part of the overall investment. This viewpoint can influence an investor to settle for weak insurance because it improves the cash-flow calculations. While the cheap premiums feel great, what happens when the need for insurance arises? Is the property covered well? Are the liability limits going to be enough? Investors should never have to ask these questions; below are some key coverages every investor should have.
- Replacement Cost: This type of settlement does not consider depreciation. Replacement cost is the cost to replace the structure at the time of loss. If a policy reads Actual Cash Value (ACV), this policy factors in depreciation and any claim payout is going to be significantly reduced.
- Special Form: With property insurance, there are three different forms of coverage—basic, broad, and special. Basic is the least comprehensive, broad is a slight improvement, and special is the most comprehensive coverage form. Anything less than special coverage is, well, not too special at all. For example, accidental water damage is not covered under a broad form policy.
- Liability Limits: While the actual structure is important to insure, it is also crucial to have strong liability limits in order to protect the investor [as an individual, LLC, etc.]. The premium difference between the weakest liability limits and the strongest liability limits is pennies on the dollar. Financial protection, in the event of a liability claim, is pivotal for any investor.
- Ordinance & Law: This coverage is extremely important if losses are caused due to updates in ordinances and laws. For example, a tree falls on the corner of a building, damaging 10% of the wiring. New ordinances may require the entire building’s wiring be updated to meet code. Standard insurance is only going to pay for the wiring that was damaged by the tree falling. O&L is there to pick up the undamaged electrical that is required to be updated in order to meet new code.
- Many more coverages, such as:
- Vacancy Clause
- Sewer/Drain Back-up
- Loss of Rental Income
Saving money is great … until a claim occurs, and the costs outweigh the initial savings on premium. With investment properties, having correct, strong insurance can be just as affordable as cheap, gap-filled insurance. An investment property should never become a bad investment because of insurance. As experts in this field, we would love to review your policies to see how we can add value to your investments. Give us a call or an email today.