by Corey | Home Insurance, Landlord Policy
The cost of real estate has never been higher than it is now. In times of the boom, we always kick ourselves for not buying more real estate in the past. If you find yourself investing in properties to rent out then you may want to learn more about rental property insurance. It is important that you purchase the right kind of policy so that you will be properly covered in the event of a claim.
Depending on where you are in the process, the policy you need may vary. We will discuss some of the more common policy types you may need. Make sure to be up front with your agent as much as possible and share your coverage concerns to make sure you get the policy that is right for you.
VACANT PROPERTY INSURANCE
If you purchase a property that is vacant with an intent to renovate it before you rent it out, you will want to make sure you have it insured as a vacant property. The rate is higher for these types of risks but your claim can be denied if you don’t have it properly insured. The good news is many carriers can offer short term policies for these types of properties. You can do a term as short as 2 months and as long as 12 months with some carriers. If you know that you will have the renovations completed in a couple of months then you can insure it that way for shorter term and rewrite when the occupancy changes.
Builders risk policies should be chosen if you are building from the ground up or have major renovations. If you are doing minor cosmetic renovations only then you can just choose a standard vacant policy.
Keep in mind that vacant policies often have diminished coverage options so you will want to discuss any exclusions with your agent.
SHORT TERM RENTAL INSURANCE
With the advent of Airbnb, VRBO and many other companies offering short term rentals, a new hybrid sort of policy was needed. If you own a vacation home that you also rent out then you need to make sure you are covered while you are in the home and when you have it rented out. Many carriers offer endorsements to your policy that will cover both instances. You need to make sure your agent is aware so that the proper coverage can be put in place. A short term rental policy is imperative to be properly covered.
Liability is also important for these risks so max out the liability if you can so you can protect yourself from being sued. Many times you can get a liability limit up to $1,000,000.
RESIDENTIAL PROPERTY RENTAL INSURANCE
Maybe you owned a home or condo that you held onto when you purchased another primary home instead of selling it. Maybe you purposely bought a home with the intent to rent it out. A home policy for this is very common. Most of times you will see this policy form listed as DP1, DP2, or DP3. Definitions of those policy forms are listed below. The age of the property, among other reasons, may determine which policy form you may qualify for. Typically these policies will require a tenant on an annual lease.
DP1
A DP1 policy is the most basic form of a rental policy. It is also commonly referred to as a standard fire policy. These policies only cover the actual cash value as opposed to the replacement value of your property. This accounts for depreciation and will not build the property back as it stands now. The number of perils insured against is much less than the other policy forms. It covers only the perils listed which most often includes those listed below. Keep in mind that you must have the Extended Coverage endorsement added to your DP1 policy to insured against all of these perils.
Perils Covered
- Fire
- Lightning
- Explosion
- Wind
- Hail
- Riot
- Smoke
- Aircraft
- Vehicles
- Volcanic explosion
DP2
This policy form is a little more comprehensive than the DP1 form. It will cover the perils listed above for the DP1 form and also those listed below.
Additional Perils Covered
- Vandalism and malicious mischief
- Burglary
- Weight of ice or snow
- Glass
- Falling objects
- Freezing of your pipes
- Electrical Damage
- Collapse
- Water (not flood)
- Cracking or bulging
DP3
A DP3 policy is the broadest coverage of the 3 dwelling fire policy types. It will cover the actual replacement cost of your home so you can rebuild the home as it stands today. You will want to make sure you insure the dwelling for that replacement amount though. The perils covered is considered “all risk” unless specifically excluded so you don’t have to worry about being covered for certain perils unless they are specifically excluded on the policy.
COMMERCIAL PROPERTY RENTAL INSURANCE
If you own a property that will be leased out to a business then you will need to purchase what is called a lessor’s risk insurance policy. This policy picks up the exposure of a business renting your property instead of someone renting it as their residence. You can insure the property and liability on one of these policies as the owner renting it out to others.
We strongly encourage you to make it part of your lease that the tenant carry their own insurance as well. This can cover their contents as well as the liability. You will want their policy to cover any liability claim first. Don’t think you won’t be named in a suit as well as the owner of the property. Proper lessor’s risk liability insurance should be in place to at least defend you in the event of a lawsuit.
These are all just the basics on insuring your investment properties. We have specialized in insurance for rental properties for many years so feel free to call us at 704-494-9495 to discuss any specifics of your situation. We are more than happy to help.
by Corey | Home Insurance, Home Insurance, Landlord Policy
For those with a history of investment property policies, you may be familiar with the insurance company requirements for these policy types. If you are not familiar with what insurance underwriters look at when evaluating insurance risks, this may be helpful to you.
Insurance companies will perform a visual inspection of the exterior of the rental property to make sure there are no major liability hazards or damage to the property that could increase the likelihood of a claim. Below are a list of some of these items that if corrected, will decrease the likelihood of your coverage being canceled or decreased.
Types of Common Underwriting Concerns for Investment Insurance Policies
- Steps without handrails
- Damaged steps or porches
- Dogs with bite history or certain dog breeds
- Peeling paint on siding or eaves
- Aged or poor shape of roof
- Unlicensed vehicles
- Lack of updates to roof, heating, wiring, and, plumbing
- Dilapidated outbuildings, sheds, or garages
- Miscellaneous trash or appliances in the yard
- Dwellings written as rental units that are vacant or for sale
- Broken windows
- Trampolines on premises
- Skateboard ramps
- Pools without a standard 4 ft fence and locking gate
- Broken pavement on walkways and driveway
- Trees or branches overhanging roof
- Mold or mildew growth on siding, eaves, or roof
- Missing siding
- All correct owners listed as the named insured
This list is just some of the more common issues that can change or cancel your landlord policy or rental property insurance coverage by your insurance company upon inspection of the property. Insurance companies must provide you at least 14 days written notice to correct these items before they can cancel your policy. In many cases they will provide you even more time than this.
In any event, it is best to make sure that these items are addressed before your policy is issued as some of these things can take a lot of time for a contractor to fix. If you have received a cancel pending notice, once you can show proof to the underwriter of the company (usually by photos) that they have been corrected your policy can be reinstated. Please contact us with any specific questions you may have about any of these items or any other that you may have that you may fear will effect your rental property being insurable.
by Corey | Home Insurance, Landlord Policy
There are 3 typical policy types you can choose from when purchasing a landlord policy. We will discuss what perils are covered on each type so you can make an educated decision on which coverage is best for you. Like any decision you must weigh the cost differences with your level of comfort on the coverage type chosen.
Investment Property Policy Forms
DP-1- A DP-1 policy stands for Dwelling Policy 1 and is known as an actual cash value (ACV) coverage. ACV covers your dwelling minus any depreciation of the property based on age.
Put simply this covers:
Replacement Cost (RC) – Depreciation = Actual Cash Value (ACV)
In addition to accounting for depreciation, this policy will account for less perils or causes of loss. The basic DP1 policy is a standard fire policy. You will want to ensure that this form covers you with an additional endorsement called Extra Coverage (EC) which covers additional perils such as:
- wind
- hail
- aircraft
- riot and civil commotion
- vehicles
- explosion
- smoke
Finally, you can add a Vandalism and Malicious Mischief (VMM) endorsement. This allows coverage for willful and malicious damage to property.
A lot of investors feel that this policy works best for them especially when they have several dwellings. They want to make sure that their investment is covered in situations of large or total losses but aren’t interested in the full replacement value of the property.
This policy type keeps their premiums down, which in turn helps their bottom line of making a profit on their investment properties. It can be difficult with some carriers to get any forms higher than a DP 1 if the home is older and lacks sufficient updates on items such as the roof, heating and air, wiring, and plumbing. In addition, you may find it difficult to find an insurance carrier that will offer anything higher than a DP1 policy on a vacant property due to the risk level.
DP-2- A DP 2 policy offers all of the coverage under a DP 1 policy and also adds coverage for falling objects, plumbing, and weight of ice or snow.
DP-3- A DP 3 policy is considered an all-risk policy and will cover all losses unless they are specifically excluded on the policy.
A typical DP 3 policy will cover the full replacement value of the property. This will require you to increase the coverage to the full replacement value. To have this policy form the home must be relatively newer, as far as year built, or have had all recent updates. This policy costs more, generally due to the higher coverage amount and perils covered.
Please contact us at 704-494-9495 if you have any additional questions as to the coverage types or would like input to help you determine what policy might work best for you.
by Corey | Home Insurance, Landlord Policy
If you have purchased an investment property either to fix up and flip or to rent out, then you need to make sure that you are covered properly under the right insurance policy. Investment properties are similar to that of a primary home insurance policy but with several differences. You should make sure you have the right kind of investment property insurance coverage to make sure you are properly insured.
If at any time you move out of your home and it has become vacant or if you are renting it to a tenant then you will need to call your insurance agent right away to make sure that you are covered appropriately. Depending on your insurance company, you generally have between 30-60 days to update your policy or you could be denied coverage in the result of a claim.
Insurance companies need to rate the risk accordingly. For instance, the risk of a vacant property having a claim is much higher than that of one on your primary home. These risks could be fire, theft, vandalism, etc. Many carriers can rewrite your policy to a vacant dwelling and in many cases convert this policy to a rental dwelling once you have found a tenant to move in.
There are several coverage types you will want to think about changing on your policy once you have a home that is up for rent or up for sale.
Liability Coverage
In today’s litigious society you really need to consider increasing your liability coverage as high as possible. You can be sued by your tenant, tenant’s guests, contractors, delivery persons, etc.
Vandalism and Malicious Mischief
This covers damage to your property due to vandals damaging your property or theft of various items.
Contents Coverage
This is one of the coverage types that you can decrease to your desired level. Once you have all of your personal belongings and furniture out of the home, you won’t need the higher coverage. Most investors will decrease this coverage to $5,000-10,000 to cover appliances or any minimal amount of items they own that are left in the dwelling.
Loss of Rent
Also known as Rent Loss and Rental Income. This type of coverage pays you for any loss of rental income you would incur in the event of a fire or covered peril.
Water and Sewer Backup
This is one coverage that most people don’t realize is not generally covered under their property insurance unless you endorse it. It is also handy to have on your primary home insurance policy as well. This covers any back up of water or sewer pipes coming back into your home. You choose the limit you wish here which generally starts at $5,00 or $10,000 depending on your insurance company. A lesser deductible sometimes applies compared to your all other perils deductible.
by Corey | Home Insurance, Home Insurance, Landlord Policy
I would like to discuss exactly what an umbrella policy is and give some insight as to whether you may need one to protect yourself.
An umbrella policy, which is also known as an excess liability policy, is a personal liability insurance policy that is in excess of other underlying insurance policies that you may have. An umbrella policy can be thought of as a secondary insurance policy that pays when you have exhausted the limits on your primary insurance policies.
Certain underlying policies that you may have may include home, auto, boat, motorcycle, or rental property insurance. Your umbrella policy will require you to have certain underlying limits on these policies to meet the requirement. Most common underlying limits for auto liability would be $250,000/500,000/50,000 and $300,000 personal liability for property insurance. Higher limits are usually required to lower the risk of actually having to use your umbrella policy.
To further explain this in an example, we will look at an incident where you are being sued for $500,000 by an individual that you hit in an auto accident. If the legal ruling favors that individual and you are required to pay $500,000 then $250,000 would be paid from your auto insurance policy under the max bodily injury liability limit. The remaining $250,000 would be paid by your umbrella liability policy.
Determining the need for this type of liability policy is a decision that you will have to give some serious thought. Most people with a minimal net worth may not feel the need to pay for this protection. However, someone that has a considerable amount of equity in their home, business, or other assets may find it to be a very important tool to protect themselves and their assets.
Coverage afforded under this policy can include bodily injury or property damage due to your negligence or perceived negligence. Also you can be covered against complaints of libel or slander.
How is an umbrella policy premium determined?
The following are some of the more common factors that go into determining a rate for an umbrella policy.
- Driver age and driving history
- Driver experience
- Number of drivers
- Number of properties
- Number of other boats, motorcycles, ATV’s, etc.
- Prior claims
- Liability limits chosen
Please let us know if you have any questions or would like to be quoted for this valuable coverage. Premiums can run as low as $150 per year and can provide you the protection you need living in today’s litigious society.
by Corey | Home Insurance, Landlord Policy
One of the most important areas to understand on home insurance policies is the gaps in coverage, or exclusions on your homeowners policy. There are several that you may not be aware of. Even if your homeowners insurance policy is written on an HO-3 form which covers replacement value on an all-risk basis, there are certain exclusions that you may be unaware of. We will discuss some of the most common insurance gaps.
Flood Insurance- A flood loss is defined as waters rising up from the ground from excessive water that finds its way into the house. To be covered for flood losses you must purchase a separate flood policy from the federal government under The Federal Emergency Management Association(FEMA). Your home insurance policy will absolutely not cover you for flood insurance of any kind.
Earthquakes- An endorsement can be added to your policy that will cover you for earthquakes. Where we are located here in Charlotte, NC we don’t see earthquakes like in other parts of the country but if you want to be covered for such a loss you need to add this endorsement to your policy.
Water/Sewer Backup- Water backing up into your home from sewer or plumbing pipes is not covered on your home insurance policy unless this endorsement is added. A lot of home insurance policies don’t have this endorsement so to adequately protect yourself it is important that you talk with your insurance agent about adding this coverage.
Jewelry and other personal property- Most home insurance policies will only cover you up to a maximum of $1500 for jewelry losses. If you want to be covered for anything over this amount you need to add the Scheduled Personal Property endorsement to your policy. In most cases items over $5000 would need to have a recent appraisals that will proof the value of each item. This figure could vary so check with your agent to find out what is required.
Jewelry is the most common type of personal property that has limitations under your policy but there are several others. Musical instruments, guns, computer equipment, silverware, money, and bullion, are some some other examples of personal property that has limitations as well.
Residence Premises- Residence premises is a term used to define the residence where you reside. If you purchase a home insurance policy such as an HO-3, HO-2, HO-8, or HE-7 there is only coverage in the event of a loss if you reside in the home. The home must be your primary residence to be covered. It is the duty of the insured to notify the insurance company once the residence becomes vacant for any reason or if it has become tenant-occupied.
This is very important to know because your insurance company can deny coverage if you do not notify them so that the policy can be rewritten on the correct form such as a vacant home policy or tenant-occupied dwelling also known as rental or landlord insurance.
To further explain, please read the following examples:
A home has been temporarily vacated so that renovations can be completed.
The home is being renovated before moving in.
You move to another location and the home is vacant while you are trying to sell it.
You move to another location and rent the property out to a tenant.
The home is in the name of your elderly mother who lives in a nursing home and you reside in the home.
These are all examples of situations where a claim can be denied for a total loss or partial loss due to the policy being written incorrectly.
Incorrect named insured- It is very important that your home insurance policy is written with the correct owner of the property at the time of writing the policy. The owner or owners should be listed on the policy. If the policy is written in the name of another party and that party does not have insurable interest, the claim can be denied. The same holds true if ownership changes for any reason due to divorce, death, etc. It is imperative that the correct named insured be listed on the policy.
These are just some of the coverage issues you may encounter by not being fully educated on the type of policy that you are purchasing. There are others so please contact your agent with any questions you may have. Don’t wait until you have had a loss and it is too late. Please feel free to call us at 704-494-9495 with any questions as well.