Insurance for Buy and Hold?

Question

I'm going through the purchase process for my first two buy and hold rentals in Philly right now, but I have no idea what kind of insurance policies I need to carry. I've been going through the forums but I can't seem to find any breakdown of what exactly I need to be looking for. A lot of people mention an Umbrella policy, but I have no idea whether that's all I need or if I need that plus something else.

Can anyone help, either by explaining the subject or pointing me to a resource where I can read up on it myself?

Jason Bott · Answer

@Alex SImon

The term Umbrella is misused on BP 99% of the time.  Most people are referring to a policy that can handle multiple policies all at the same time, versus having a separate policy for each property.  So starting off, do not lead your conversation with Umbrella policies when getting insurance options.

You will want to have a policy that at a minimum, gives you coverage for the Property coverage, General Liability coverage and loss of rents.   Most policies have these 3 main pieces to it.

There are many other 2nd tier coverage's such as back up of sewer, Building Law and Ordinance, etc. that you may want to consider.

Lastly,  Keep in mind that the term "Landlord" or "Rental Property" policy are not names of policies that all insurance companies use.

Kelly N. · Answer

Hi Alex,

We get a "Landlord" policy on each rental home (ours are multi-units).  The mortgage company is going to require a homeowners' policy which is basically what the landlord policy is, except it won't necessarily cover all the stuff the tenants have (mine covers the first $7500 or something like that) and you pay a little more since it isn't owner occupied. I have a clause my leases encouraging my tenants to get renter's insurance as well.  Some landlords insist on it, some even provide it.

We also have an umbrella policy that would cover us in the event that a claim was above and beyond what the landlord policy (or our own homeowners or our auto policy) covers to protect our personal assets.  To get that, I had to switch all my other insurance (auto and home) to the company offering the umbrella.

Yenipher Barrientos · Answer

Hi Alex! congrats on your home I am a Farmers agent here in California and I'd be happy to hopefully address some of your concerns/questions , what you need to carry on those properties is a landlord policy...these will provide some personal property coverage (this covers items in the property that are yours like maybe appliances that come with the property) the amount shouln't be that high since again its only covering personal items you purchased for the units such as appliances...that policy will also carry liability this is important because lets say there is a fire in the property and it damages the neighborhs property; the neighborh can come after you for the repair funds to rebuild their property again..liability will cover you in this instance (we recommend $500k when the owner is renting the property to others) and the policy will also carry loss of use (loss of rents) since you are renting the property to others. So in the same example I just gave you; the house catches on fire this amount of loss of use will pay you for the rent you would go without while the property is being repaired. As far as an umbrella that is a total separate policy that I would also encourage you to have but it can wait...the first thing is the landlords policy. The umbrella acts as a barrier between your assetts and everyone else trying to get to them! (best way to think of an umbrella insurance)  the umbrella serves as another layer of protection and it piggy backs of your auto policy (you cannot have a stand alone umbrella policy) without having an auto policy with the adequate limits of liability to go with the umbrella althought he umbrella protects your auto and homes as well. So here is how the umbrella works.... you have $500K in liability insurance for some reason you are being sued and there is a judgment against you for $800K your property where the sued occurred will pay the $500K in liability and the umbrella will kick in the additional $300K remainding...if you didn't have an umbrella you would have to pay $300K out of pocket since most people do not havet this amount cash thats when the courts would order assets to be liquidated to pay this debt, including garnishing your wages if necessary, (of course this depends on the severity of the sue/judgement) I AM NOT A LAWYER and I am not giving legal advise, just explainin what you would need as far as insurance. I hope this helps you Alex!

Matt Holmer · Answer

One thing to keep in mind when your price shopping an umbrella policy is that you'll likely have to increase your auto liability limits as well.  Where I am, State Farm requires a minimum of $250,000/$500,000 on the auto in order to write the umbrella.  It's not a big cost, but it is something to keep in mind.

Alex SImon · Answer

This clears things up so much!  Thank you to everyone who has responded to this thread with helpful clarifications.

Kimberly T. · Answer

As others stated, you need a landlord policy.  It's kind of like a homeowners policy, but for non-owner occupied dwellings and typically doesn't cover the personal possessions (furniture, etc.) inside the dwelling.  You'll want liability coverage (we get a minimum of $500k/property), property coverage, and lost rents.  If you just call up some insurance brokers and explain that you're buying some rentals and need an insurance quote, they'll know what you're talking about and they'll know you don't want owner-occupied type homeowners insurance (but not all insurance companies do these types of policies).

An umbrella policy provides you liability coverage above and beyond what your individual properties' policies cover.  For example, we own 4 rentals, each with their own insurance.  Then, we have a personal umbrella that covers our stuff (so if we cause a massive car accident, they won't sue us because they think we're worth lots of $$$ and make us sell our rentals, they'll just go through our personal umbrella), and a commercial umbrella that covers our rentals (so if we have a major loss with a claim higher than our liability, the umbrella kicks in up to an additional $2M in liability).

Hope that helps.

Alex SImon · Answer

@Daria A lot of those results are just people being really confused about whether or not an Umbrella policy is what they need, and very little in the way of concrete answers.  Specifically, I haven't seen anyone talking about whether an Umbrella is ALL you need or if you need more than that, some separate policy for each property, etc.

Stone Teran · Answer

I buy a no-frills fire/hazard policy on the property with a high deductible.  If it burns to the ground, I want to be covered.  If it's something small, I'll just fix it myself.  I use Travelers.

Daria B. · Answer

Have you tried to use the search at the top right of the screen and just put in 'umbrella policy'? I got a ton of hits when I did this.

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