Insurance: what to learn/read for small apartments?

Question

Hey BP community,

As I’m learning to purchase and own apartments, where should the topic of insurance be in the pecking order?  If I’m looking for a 4 plex (residential) or 6-plex (commercial) apartment building, what should I start to figure out in terms of insurance?  What are the key things to look for and pitfalls to avoid?

Are there good books to read that provide an overview?

Comments and feedback appreciated!

Dan H. · Answer

@Mark Doty

There is some good advice in the replies.  I wanted to remind you not to forget asset protection.  One mechanism of asset protection is an umbrella insurance.   As you acquire assets your net worth increases.  If the acquisition is via rentals, the risk of being sued also increases.  Hence the need to protect your assets from law suits which is the function of the umbrella,a coverage.

There are other ways to protect assets from law suits such as LLCs.  However, there are lawyers very proficient at piercing the LLC protections.

Account Closed · Answer

In my personal experience insurance can be extremely confusing. I am sure it varies from investor to investor, but I am personally least comfortable with estimating insurance costs than other finer points in a valuation (management fees, construction costs, maintenance costs, taxes, etc.).

For larger assets, I would highly recommend finding a good insurance broker in the area (as others have mentioned). They will be able to help you pick out the best product for your business plan. Sometimes this is not obvious.

For smaller assets, I have had better luck speaking with other local investors in similar asset classes. The law of attraction seems to work here... usually several refer the same few places. I can followup from there.

Hope this helps a bit.

- JA

Mark Doty · Answer

@Costin I. @Jason Bott

Thanks for the responses...both of your answers were what I was looking information around!  Thanks!

Costin I. · Answer

@Mark Doty One good resource I used to learn about insurance and various aspects of it was Every Landlord's Property Protection Guide: 10 Ways to Cut Your Risk Now (book w/ CD-Rom). I recommend it since it also has other aspects of interest for what you are trying to do.

Then you'll know about the various terms used in insurance industry, know what coverage you get and what you don't and is extra.

Keep in mind the premium can change depending on:

• actual replacement vs cash value
• liability protection level
• vandalism clause or not
• medical expenses level
• protection of rent income or not
• water backup or not
• rebuild code update or not
• demolition removal or not
• type of house (1 story vs 2-story),
• type of construction (e.g living space above garage) and materials (brick, stone vs. wood siding), or roof
• multiline discounts
• history with the provider,
• claims history and CLUE report/score
• credit score (maybe)
• property history
• desired coverage
• etc.

Jason Bott · Answer

@Mark Doty given the lack on info in the marketplace, I put together a free report highlighting some of the main risks real estate investors need to address.

It covers the following;

• Thirteen property characteristics that drive higher premiums
• Seven types of tenants that insurance companies run from
• Four terms you must include in every subcontractor agreement
• Five insurance coverages your property manager must have
• Four simple steps to ensure you have the correct policy
• Five warning signs in selecting an insurance agent

I'll send you a PM

Mark Doty · Answer

@Bjorn Ahlblad, @Alina Trigub, @Pancham Gupta, @Jose Linares, @Dan Heuschele

Thanks for the responses and advice...much appreciated!

Pancham G. · Answer

@Mark Doty: As others have mentioned already, I will try to find a good insurance broker in that area and pick his brain. Insurance is a subject that many people take lightly but its very important. Your lender will have some *minimum* standard requirements that you will have to get. Some people just get the bare minimum that the lender requires and some people add on things based on their comfort level.Insurance is also very location specific. For ex: some areas come under flood zone will require flood insurance etc.

Jose Linares · Answer

@Mark Doty are these properties in San Diego or out of state investments?  If they are in San Diego, I can refer you to two contacts that can assist with your questions.

Alina Trigub · Answer

@Mark Doty Consider using a local insurance broker that can shop for the best term based on your specific case and not affiliated with one company.

Bjorn Ahlblad · Answer

@Mark Doty In San Diego you will want liability and earthquake ins. I 'shop' every two years to make sure I am getting a good deal. You don't want just price you want a company that steps up when it counts often internet reviews will help you decide. I have no idea about books or articles. Personally I use Farmer's for most coverages including cars, and Lloyd's of London for other coverage. Feel free to choose whatever company you want; but make sure you have lots of Liability coverage if you have rentals and tenants.

Insurance: what to learn/read for small apartments?

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