Properly insuring your rental property needs to be an important part of your investment strategy. Today, we have asked Terry Cleveland, an expert in landlord insurance, to talk to us about policies for investment property in Indiana. She’s going to talk about what you need in a rental home policy. Remember that laws and policies are different in every state, so make sure you’re working with an agent or an insurance company that can handle your policy locally.
Rental Insurance for Investment Properties
An investment portfolio can be insured in one of two ways. You can have your own individual name on the property, or you can put it into a corporation or an LLC. When you do that, you can separate the investment from your personal assets. It provides another layer of protection against legal liability. That’s the first thing to look at – how are you structured for your assets?
The second thing to look at is your insurance company and the products it can provide. Not every company writes every product in every state. So when you’re looking at insurance, your agent needs to ask a lot of questions to be sure as much of your asset is protected from liability as possible. Sometimes our questions are repetitive, but we need that information. We will need photographs and updated information for your investment homes.
When we are pricing insurance coverage, there are three levels to pick from: basic, which is bare bones coverage, a broad form policy, which has intermediate coverage, and then a special level of coverage which covers all risks with a few exceptions. We always recommend that special level of coverage, but that means insuring the property at its replacement cost. Because of the market right now, a lot of people are buying low, but the replacement cost might be two or three times what they’re buying. So in order to get the best level of coverage, you need to be prepared. The house might cost $100,000, but you’ll have to insure it for $200,000, because that’s what it takes to build it back. I’ve never met anyone who only wants to build half a building back. Then, you’ll have to pick a deductible, and the higher deductible you select, the lower your premium.
Recommended Liability Coverage
Think about what you have to lose. You never know how big a lawsuit is going to be or how deep into your pocket it will reach. With some policies, you can only purchase up to half a million dollars of coverage. Other policies will have a million dollars of coverage available. That’s the most you can get, and it’s actually not always enough.
Umbrella policies can help with additional liability coverage. You might have $5 million in assets, and your umbrella policy can handle that. Make sure the company writing your umbrella policy is willing to include your rental home. There may be a minimum amount, such as $500,000 or $300,000 in additional assets in order to be able to add those. Talk to your agent; umbrella policies are not inclusive all the time, and you have to specify what you want to cover. The insurance company has to charge a premium for every item they cover. They will charge so much per property. Depending on the assets, it could cost $20 per year per property or $100 per year per property to add them to the umbrella. That’s still so inexpensive. We always put the liability on the rental property so the front line is covered. You don’t want a gap between underlying coverage and the umbrella. That could translate into a $200,000 deductible, which you don’t want.
Rental Insurance for Out of State or Foreign Investors
Not all insurance companies will write polices across state lines, so in the end you’ll need to put things together so your Indiana rental property is covered. The goal is to get as high a liability limit as possible. If your property is set up as an LLC or a corporation, you can get a supplemental liability policy and put another umbrella layer on top of it. We are seeing that a lot right now.
Rental Insurance for Properties in an HOA
Pay attention to the master policies when you own a condo or a townhome in an HOA. You’ll need to know what that master policy covers, and when the homeowner’s policy or landlord policy kicks in. Any time there’s a master policy on a condo or an apartment, you’ll want a copy of that policy. We can look at it and give you an interpretation so we can plan the coverage you need. If there’s a claim, the companies will want to see that master policy as well. One policy starts where the other stops. Most of them will say the investor or owner is responsible for the drywall in – meaning that you’re responsible for the drywall, flooring, landlord-insurance-what-kind-of-policy-do-you-need-for-your-indianapolis-rentalelectrical, plumbing, and other systems.
If you have any questions about rental insurance or anything pertaining to Indianapolis property management, please contact us at ES Property Management.