How much insurance is enough on a rental property?

Question

I'm buying a rental property in MS and looking at insurance quotes.  It seems like the driving factor for the cost is how much building coverage one gets so how much should I get? The property I'm looking at is a SFR with a purchase price of $182,000.

I think a lot of people mis-use/don't understand insurance - my personal mantra is to only insure against the catastrophic or the unknown. But how does/should this change when you're looking at a rental property?

I could afford to replace the whole cost but it would be painful so does that mean I should get insurance?

And thoughts on deductible?

Paul Winka · Answer

@Harry Campbell

What conclusion did you come to, Harry?

Harry Campbell · Answer

Right, I understand the liability portion completely and agree that that's where insurance is most important.  But if I have a $300k policy on the house for liability and $1 m umbrella policy, that seems like plenty to me since you really just want someone else's lawyer (the ins. company's) working for you in case of a claim right?

I'm more thinking about the building insurance - how much should I get there since that's really what drives the cost..

Michael Badin · Answer

If you have multiple properties try to get insurance with one insurance carrier that will allow you to "stack" your coverage like you can with a vehicle. This way you don't have to necessarily go outrageous on your coverage but will have enough when the time comes.  Bare in mind the stacking is usually only for the liability.  I go heavy on insurance, but being an insurance adjuster for the past 15 years I have seen what happens to those that have been uninsured or underinsured.  I would rather pay a little more here and there along the way and have the coverage for peace of mind when the time comes.  I understand you want to save money, but when you have a claim can you afford to pay thousands or tens of thousands?  Keep your deductible at a reasonable level, you need to determine what that is for yourself, it is different for everyone, but keep this in mind; your deductible is your self insured limit.  That means every time you have an insurance claim you have to pay for the damage up to that amount before your insurance will kick in.

Yuriy Skripnichenko · Answer

@Harry Campbell

Insurance is a must! You can whatever you feel comfortable with as for replacement cost or actual value. BUT, you have to have liability insurance in case if someone injures at your property you will covered.