Getting Homeowners Insurance for a rental property

[Maneesh Joshi]

Hello All,

So I am planning on buying my first investment property in Philadelphia that I plan on renting out ASAP. When speaking my State Farm insurance they indicated to me that the investment property needs to be occupied by someone within 30 days with a copy of the the lease agreement and that there is no way around that(if not the policy will be cancelled). I cant imagine being able to occupy the property within 30 days. Has anyone else encountered this? Any suggestions?

Thanks,

Maneesh

[Ryan Ingram]

Hey Maneesh,

Great question!

Each insurance company has their own occupancy requirements as far as the time that may lapse from acquisition to occupancy. 

Some companies are 30 days, other companies are 60 days. 

The only reason this is an issue is because vacant properties are much more likely to get vandalized, broken into, and other general nonsense. 

Insurance companies base everything they do around the law of large numbers or the law of averages. They profit from the spread of money collected vs money paid out. 

Due to the heightened risk of being unoccupied, they need to collect more premium to insure they have a more reasonable spread between money collected vs paid out. 

Because of this, unoccupied properties should not be on dwelling fire (landlord policies) or homeowners policies. There is a separate policy called a "vacant policy." 

Vacant policies are generally 2-3x more expensive than dwelling fire and homeowners policies. They are commonly sold in 3 month, 6 month, and 12 month terms. Vacant policies also generally have a 100% minimum earned premium on the 3 month policies. That means that if the property is occupied after 30 days, you still have to pay for all 90 days worth of coverage. 

There are a few companies that allow you to pay monthly and have a $100 or less minimum earned premium. 

I'd highly recommend finding a local independent agent that is investor friendly. They have the ability to work with several different companies to find you the best coverage...not just State Farm. 

Let me know if I need to elaborate on anything, or if you have any more questions...I'd be happy to help!