How do I find the right insurance policy?

[Shannon Beavers]

I expect to close on my first deal. It is an MLS purchase, that I plan to rehab. How do I make sure I have the right insurance?

[John Mocker]

Shannon,

Finding the right insurance is a two part operation.  First you want to educate yourself with at least some info on the types of insurance used.  As Jason mentioned, the type of project (Buy & Hold, Renovate & hold, Flip, etc.) will determine the types of Insurance needed.   Depending on the project you may need:

1. Homeowners (owner occupied 1-4 family) or Dwelling Fire policy (non-owner occupied 1-4 family)

2. Commercial Package or BOP policy (5+ units)

3. Vacant Dwelling or Package policy (a vacant or unoccupied bldg.)

4. Builders Risk or Renovation Builders Risk (Flip or renovate & hold).  Will also need Liability coverage with this

Next you want to find an Independent Agent that has knowledge in the areas that you will be dealing (both location & type of deals).  If you are Flipping or Renovating to Hold you should consider an Agent that has experience with construction. 

Here is some info from a past post that may be helpful:

Here are some things to look for from an Insurance prospective:

1. Any in-ground tanks (active or inactive)
2. Any Knob & Tube or Aluminum Wiring
3. If built before 1978, does the building have Lead Safe certifications
4. Any wood stoves or secondary heating units. If so, were permits pulled & were they installed by a professional
5. Are any of the homes rented to students
6. Is there a flat roof
7. are there asbestos shingles - Heating systems- PlumbingSome companies will not write properties with systems that have not been updated

The Year that the following were updated (either partially or fully) would be good to know:

- Heating systems

- Roof

- Plumbing

- electrical

Some companies will not write properties with systems that have not been updated.

As long as you are living there, the proper policy for a 1-4 family is a "Homeowners" policyc. If the property is solely tenant occupied you will be looking for a Dwelling/Fire Policy (may be called a Landorrd policy or similar name) or a commercial policy such as a Businessowners or Package polciy.

Most homeowers or dwelliing/fire policies include:

1. Dwelling (Building coverage)

The limit should be based on the Replacement Cost of the building (cost to rebuild with

the same kind and quality excluding the foundation)

2. Contents (Personal Property): most homeowners policies give a set % of the Building

limit for Contents. Dwelling/Fire policies requrie that you request a limit for conents.

3. Detached Structures: for other buildings on the property (ie. sheds & detached garages)

Again, there is normally an included limit of 10% of the building limit. That can be increased

if needed.

4. Loss of Use / Loss of Rents: Normally, there is a 20% included limit. Loss of use is for

your additional expenses if you can not live there due to a covered claim (ie. Fire). The

Loss of Rents is for the loss of Rental income if the tenants can not occupy the house

after a covered loss.

5. Personal Liability: For claims due to Bodily Injury or Property Damage that you become

Liable for and which is covered under the policy. Companies normally offer limits up to

$500,000 but some offer $1,000,000. Buy the max.

6. Medical Payments: Provides coverage for an injury suffered on the premises. Does not

require proof that you were at fault. Used to keep small loses into becoming lawsuits.

Normally offered up to $5,000 but check to see if higher limits are available.

7. Deductible: This is not a coverage but rather your portion of a claim. Most better policies

will not have a deductible for either the Liability or Medical payments coverage. It will

apply to the other 4 coverages. You can select the amount of the deductible, usually

ranges from $500 to $5,000. The higher the deductible the lower your overall premium

but get quotes on all the deductibles you are interested in. Sometimes the incremental

savings from $1,000 to $2,500 or from $2,500 to $5,000 are too small to make the higher

deductible worthwhile. ***depending on how far the house is from the coast, you may

also be required to have a separate Wind or Hurricane deductible. Most times, the

deductible will be 2% to 5% of the building value. That is a significant amount

(on a $500,000 building that comes to $10,000 for 2% or $25,000 for 5%). A policy

with a higher premium may be a better deal if it does not have a wind deductible.

There are many endorsements that are available on the homeowners policy. Without

knowing the details I can not suggest which would be right to add on.

Several you should

pay attention to are:

- Ordinance & Law: Provides additional building coverage to deal with rebuilding cost

Increases due to changes in Zoning or Building laws

- Personal Injury Liability: Libel, defimation of character, wrongful imprisionment, etc.

(normally recommended, especially if you are a landlord)

- Water Backup: For water damage due to the backup of Sewers or Drains.

- Personal Articles: Coverage for belongings that have a special or collectors value

such as Jewelery, Furs, Fine Arts, Collectibles, etc...

Your age should not be a factor on the pricing but, depending on the company these other factors may get you credits:

- Insurance Score (company pulls certain info out of your credit report)

It is not your credit score but generally better credit will result in a better score

- Time at your job

- Education level

- time at current residence

Good Luck