Insurance: What do you like about yours?

[Jack Smith]

Good afternoon BP folks,

I am hoping to generate some discussion around property insurance. What are the top things you look for when it comes to your insurance (ie: price alone, high liability limits, trust with agent, etc)? What keeps you with your current insurance provider? Do you have multiple policies or one master policy for multiple locations? Insurance is capitalistic, with many different options, and I feel we can all benefit from different folks in one way or another.

[Daniel Reeder]

@Jack Smith I am an insurance agent in Birmingham, AL.  I have written polices for several thousand investment properties throughout the state of Alabama.  It is my primary focus.  I mainly work with investors who purchase single family homes as well as multifamily properties.  Insurance can definitely be a little foggy when it comes to what you need in your current situation so I will define what I feel are the most valuable points in my experience with working with newbie investors as well as seasoned ones. 

Have your policies written on a Full Replacement Cost.  Avoid actual cash value policies which are based on market value and incur depreciation.  What this means to you is in the event of a total loss you will have the option of fully rebuilding your property again or receiving a check and moving on to purchasing the next property. 

Check your policies for Loss of Rents.  I prefer having Loss of Rents for up to 12 months.  What this means for you is that in the event your property is not livable for your tenant your insurance provider will pay you your rental income.  They will pay the agreed upon amount in your lease for the monthly rent of your property for up to 12 months during the repair process.  

The Business Liability Coverage for each occurrence and annual aggregate is another very important benefit to be aware of. I prefer policies written at an minimum coverage of $500k per occurrence and $1 million aggregate annually.  This is generally an ample layer of coverage for your assets.  You also can increase this at any time for a minimum investment. 

This is generally the way I approach insurance for the majority of single family home investments.  This is a very simple description.  I feel if the option is available to have a local agent within the same state your properties are located if at all possible.  An agent with an entrepreneurial mindset that thinks like an investor.  Investment property insurance is there in the event of a major loss and is certainly not something to be used on minor issues.   Find an agent who strives to write policies that are customized to the specific property and that will not allow the insurance premium to hinder the performance of the property in any way.  

Daniel