How do you determine a good landlord insurance policy?

[Chris Wilkening]

In the process of closing on my first SFR and could use some tips on choosing an insurance policy.

• How do you determine when a policy is good for the price? 
  What are some red flags to look out for?
  How much coverage do I actually need other than the replacement cost?
  

[John Mocker]

Chris,
Your question is extremely relevant. The best value for you is often not the lowest priced policy. It is the best combination of price, coverage, and company.

I usually recommend to new investors that they get familiar with some of the terms of the types of policies they will be purchasing. For a 1-4 family rental dwelling, the most common policy companies use is the Dwelling/Fire policy.

Most 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 require that you request a limit for Contents.

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.

Feel free to PM me if you have any specific questions or want more info on the process.