How much landlord insurance do you have on your properties?

Question

I got my first property under contract (woohoo!) So how much landlord insurance is really necessary? Do the experienced landlords out there recommend being more conservative and getting more coverage or going with a more basic policy (--> more cash flow)? I appreciate any insight!

Marc Winter · Answer

@Jessica G.,Congrats on your first acquisition! Insurance -- landlord fire/liability policy @ replacement value (minus land value) is correct, as @Morgan Klein mentioned.Umbrella policies absolutely do have value; however to me 2 other aspects are equally important.1. Renter's insurance. It should indemnify the owner so in event of tenant-caused loss, your insurance co will subrogate loss to tenant's policy, (saving you a premium rise), and2. Title holding entity. The more property your acquire, the more important it is to have different title holding entities. LLC's, Corp's and Trusts are some of the best ways to go. (I personally favor intervivos revocable trusts.) Speak to the qualified pros and best of luck with your goals!

Mike McCarthy · Answer

I wouldn’t skimp on limits, and I always recommend an umbrella policy as well. That said, where you can save some money is with your deductible. If you’re living sort of rent check to rent check, you may want a $500 deductible so you don’t have to dig into your pocket for a big claim. But if you have some money saved, opt for a $1,000 or $2500 deductible. You’re probably not going to call the insurance company for a $1800 plumbing repair, and the higher deductible will mean lower monthly cost. If you’re really set, maybe a higher deductible is even better. Though I might be concerned about a multiple-loss situation.

Jessica G. · Answer

@Joe Splitrock Thank you, I was starting to doubt I'd ever find a deal in DFW! And that makes sense, I think that's what we are going with - everything you mentioned, with the higher deductible. We prefer to do that with our other types of insurance as well.Thanks again everyone!

JD Martin · Answer

Liability: 1 mil per episode, 2 mil aggregate per property. Personal umbrella policy additional 2 mil. Properties insured for replacement value, which is a little more expensive than ACV but doesn't depreciate anything. Deductibles are 10% of structure replacement cost. As far as having too much insurance, it cost me I think something like $30 annually to add an extra million of liability on each house. That's $2.50/month less cash flow, and actually a bit less when you take taxes into consideration.

Joe Splitrock · Answer

@Jessica G. congratulations. it is great to see you got one under contract!For insurance we do a basic fire policy at replacement cost, no personal property included (only personal property would be appliances). We do a $1000 deductible because we are never going to claim anything small. We are thinking of changing to $25000 deductible. Looking at the cost savings with higher deductible, over time we will come out way ahead. Early in my investing career I was dropped from an insurance policy, so I avoid claims unless it is really serious. I really have insurance mostly for catastrophic events like a fire or tornado. We also have several million dollars of general liability insurance. It is one policy that covers all rentals and even kicks in on our personal or auto.The insurance industry is very profitable and that is because of a low probability of payout. Like in gambling, the house always wins over time. When landlords have enough properties, they usually switch to self-insured at some point.

Morgan Klein · Answer

Yes, great point Marc. To clarify for @Jessica G., I have comprehensive landlord insurance, a very large umbrella policy, and my rentals in an LLC. Some would consider this overkill, but it’s what I need to sleep at night.

Jessica G. · Answer

This is what my gut was telling me! Thank you both, very helpful!

Jessica G. · Answer

@JD Martin @Morgan Klein That's kind of how I was leaning, thanks for the verification.

JD Martin · Answer

They are a waste of money IMO. There's exclusions on everything and the company will do everything possible to drag their feet or otherwise avoid paying. That's not going to be helpful when your tenant is dying of heat stroke.

Morgan Klein · Answer

I would find someone local. With a home warranty you are forced to use vendors within their network and the process to get approval and repairs done can be agonizingly slow.