Where to obtain insurance?

Question

When buying an out of state rental property (our first one), would you recommend connecting with a local insurance agent or adding the rental property to your current insurance? We have State Farm covering our primary residence and two cars. Is it typical to add a rental property to your current insurance or should this be kept separate?

Jason Leavitt · Answer

Here’s an example if it’s any help. State Farm covers my properties in Oregon and Hawaii but they don’t offer coverage in Massachusetts so I have a policy there through an unaffiliated local broker. My umbrella liability policy with State Farm covers all three states though. Also with an umbrella policy you may be able to reduce the liability on the individual policies. Occasionally my State Farm agent gets updated copies of the other company’s policy so they can verify I have the proper coverages and limits still (usually during the renewal process).

My deductible on my rental dwelling policies is 1%.

Rebecca Ford · Answer

Hey Leah!

Each of your investments should have a separate policy as @Kiera Underwood mentioned above. If they are on a different plot of land, you need to have a different policy.

Most of the time, it is more cost effective to bundle your investment property with your personal home and auto policy. You will get a multi-policy discount if you insure your rental property on State Farm with your personal policies.

The only catch would be if your rental property is being bought under your business' name, if you have one. If so, you may not be able to bundle it with your current insurance. Instead, the policy would be listed under your business' name and you could bundle any additional investment properties with your current one.

I hope this helps!

Kiera Underwood · Answer

Thank you @Rebecca Ford!

Rebecca Ford · Answer

@Kiera Underwood

As long as you have your investment property listed on your umbrella policy, that property will be covered under your extended umbrella liability limits. An umbrella policy simply raises the liability higher than a normal policy offers. And, on an umbrella policy, you can list any policies you have. The trick is, some umbrella policies only cover policies under the same company. For example, a State Farm umbrella policy might only cover your State Farm policies. But, there are some companies, like RLI, that will cover umbrella policies from multiple companies. So, if you had a home & auto policy on State Farm but your investment property with Farmers, you could list all those policies on RLI and get the extended liability coverage.

Bundling policies doesn't have anything to do with your umbrella policy. Bundling policies together on one company will simply give you a discount on all your policies since you have multiple.

Technically, you're not just adding additional coverage. When you buy multiple homes, they all have to have their own separate policy, just as your home & auto policies are different. "Bundling" is simply having numerous policies on one company and getting a discount on all of them for having more than one.

Leah C. · Answer

@Rebecca Ford

Thank you for explaining all of this.

The underlying landlord insurance will have property protection and liability protection. Property protection covers your home if it’s damaged in a fire etc and you can choose what kind of deductible you would want. With a higher deductible you’re monthly cost would be less. Obviously, this is personal but what kind of deductibles are common for rental properties? I would want a higher deductible to keep the cost down ... what is considered a high deductible?

Then the added umbrella liability coverage is to help cover you if someone gets injured on your property to help cover legal and/or medical bills.  You can get a million to several million dollar coverage.

Your personal home, car and rental properties can all be insured with different companies, but the benefit to having them all with one company would be the multiple policy discount you may be eligible for. Then I could just add an umbrella policy through state farm and just have it cover our rental property.

Do I have all of this correct?

And thank you for your time!

Kiera Underwood · Answer

@Rebecca Ford

isn't the bundling still just adding additional coverage? That's the umbrella I'm discussing? Or is bundling buying a separate policy with the same company that insures your personal home and because you're using the same company you get a discount?

Leah C. · Answer

@Kiera Underwood thank you!

Rebecca Ford · Answer

@Leah C.

Yes, you've got it!

A typical deductible on a dwelling is $500-$1000. Usually, a "high" deductible is between $1500 and $2500. On some companies, you can even get a deductible as high as $5000. Choosing a deductible is always a matter of how much risk you want to take on. If you suspect that you won't have many claims, or that you will take care of small claims yourself, you might want to go with a higher deductible. Choosing a higher deductible will also bring your rate down, like you mentioned, especially if you believe that you'll have the $2500 on hand to fix any small issues your property might have. Additionally, taking care of small problems yourself will also save you money in the long run. The less claims you report is always better because your rates will go up every time the insurance company pays you money. But, it's all a matter of opinion and how much risk you want to take on.

Personally, my family has a $2500 deductible on our home because we prefer to fix small issues ourselves instead of claiming them and making our insurance rates go up.

Also, I wanted to mention something else I thought of while reading your response. In the case that it is cheaper to insure your dwelling on a company other than State Farm, you can get an umbrella policy that will cover your dwelling on X company and your personal policies on Y company. I know RLI sells umbrella policies that can do that, and I'm sure there are others out there too. :)

Kiera Underwood · Answer

@Leah C. So any property that's not on the same piece of land will require a separate policy. You can choose to expand your personal home's coverage to provide additional coverage to your rental policy, but it will only be supplemental umbrella coverage. I hope that helps!

Leah C. · Answer

@Kiera Underwood thanks for asking your provider! Curious to hear what his answer is.

Where to obtain insurance?

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