House Hacking - insurance question

[Austin Cottrell]

Hello,

I'm about to buy a Duplex to be used for house hacking. I'll be living in one unit and rent out the other to make a nice $250 profit as well as no rent needing to be paid on my end. 

My question is what insurance do I need to have to be covered for this property? 

- I know a Insurance Broker in my area but wanted to reach out to the community first to get some peoples opinions and knowledge to have an idea of what I want before talking to him

[John Mocker]

Austin,

From an Insurance Standpoint, the relation of your rental income to the expenses doesn't get considered (for you its important but that's different).  The insurance company is concerned as to whether or not the building is owner occupied (homeowners policy) or completely rented (Dwelling/Fire).  Based on what you've said it would be a homeowners policy. 

Homeowners rates can vary greatly between companies.  If your broker only represents one carrier (captive agent) or only has a couple of markets you should also consider getting quotes from other Independent agents who represent different markets.

The following is part of a post I made to a new owner in the past.  It should give you some of the things you will be looking at in the Homeowners Insurance process:

..

I can give you some general info on insuring the property:

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