For those with a history of investment properties, you may be familiar with the insurance company requirements for these policy types.
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.
- 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.
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.
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:
- riot and civil commotion
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 DP1 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.
We will be discussing landlord insurance coverage types in this Part 1 of a 3-Part blog.
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.
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.
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 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.
Premiums for an umbrella liability policy are based on the following criteria:
- Driver age and history
- Driver experience
- Number of drivers
- Number of properties
- Number of other boats, motorcycles, ATV’s, etc.
- Prior claims
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.
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.