Insurance on Rental Properties in Washington State

[Marina M.]

I've recently began learning about rental property investments and am now starting to analyze deals . I am not exactly sure how much my insurance expenses would be. I know one of the recommendations is to get a quote from a local insurance agent. However before I go out and do that I wanted to get some clarification.

So my questions are:

1. What kind of insurance should I be looking at?

2. Is it different for single family versus multi-family?

3. Any other important things I should know?

Thanks!

[Kevin Romines]

I was a previous agent for Country Financial and Farmers. You will end up buying a landlord type policy. This is typically less expensive than a comparable owner occupied policy due the fact that the contents that you cover will be dramatically less. Owner occupied contents range as a percentage of the homes replacement costs, typically 50-75% of the replacement costs. Contents on a landlord policy only cover appliances, typically $4000-8000.00 so much less than a home owners policy. 

As was mentioned above by @Travis Dawson, do not skimp on the liability coverage. Get the maximum liability coverage that you can on that policy. It's relatively an inexpensive part of the policy, but its what will save your bacon when and if something should happen and you need the coverage. Liability coverage also pays for your defense or legal fees as part of that coverage, and it does so over and above or outside your liability limits coverage.  

You should never stop with liability coverage at just the policy limits, you also will need an umbrella policy for $1-5,000,000. This policy covers your primary residence, your autos, any recreational vehicles you choose and your rentals as a secondary coverage, over and above your individual policy limits. It also pays legal costs or defense costs over and above the limits. 

This may sound like extreme coverage levels, even for 1 rental, but ask yourself how much the cost of a life is worth? If you driving in your car and t-bone another car and its a young doctor that makes 250K a year and that person is now not able to work in his profession for the rest of his life, how much is that worth? 

If you ever have a liability judgment, it cant be discharged in a bankruptcy, it has to be paid or settled. Your wages for the rest of your life, could be garnished to a max. of 25% of your income. How well could you live on 25% less income until a very large debt was paid off? Liability coverage is very inexpensive by comparison. The typical $1 million dollar umbrella policy costs between $80-200 per year and gives you great coverage. Don't skimp on this!!!