Insurance type, coverage level recommendations?

[Andrew R.]

Hi, looking at my first SFR rental, out of state in Kansas City, MO. The house is approx 100K for 3bed/2bath, built in 1960 but rehabbed.

Got an insurance quote for $1300/year. (It sounds high). It covers 250K replacement, 300K liability, 46K loss-of-use, with a 1000 deductible. 

The fee sounds high.  But I'm new to this. Any ideas on what level of coverage I should get and what reasonable fees would be, greatly appreciated. Thanks all!

[Kevin Romines]

Some of the things that help determine the premium is as follows:

- Dwelling reconstruction costs - make sure this doesn't seem to high, yet high enough to actually get it rebuilt in the event. This is typically where 80-90% of the premium comes in.

- Fire rating classification - Do you have a hydrant within 1000 ft. of your property or is it more rural? Is the responding stations paid or volunteer? Do they have tanker trucks to bring the water in? This also can make a huge difference in the base premium.

- Liability - while its not a big adder to the premium, this is one of the most important items to consider. You can never tell what kind of accident will occur and or how much you can get sued for, so do not go cheap here. Saving 20.00 could costs hundreds of thousands of dollars. We always set down with our clients and find out what all they have in the way of assets and then set the liability enough to cover the value of all those assets. That doesn't mean, that's all they can be sued for, but a minimum coverage you should have if not much more?

- Loss of use is typically a percentage of the dwelling and is capped off at 12 or 24 months. So long as you can recover 12 to 24 months rents in this section, then that's all you can really expect?

- Deductible - think of this as the amount your willing to take care of up to the point where you would turn in a claim. Keep in mind, most claims will affect your premiums for 3 years, some as much as 5 years.

- Endorsements - Back up sewer and drain is a coverage I wouldn't do without. There may be other endorsements that you would want to consider, talk with the agent. Will the insurance company allow you to extend liability from one primary property to all your properties, thereby saving you money on each one?

- If you have many properties that you hold, you might be better off writing the policy as a commercial policy known as habitational BOP or business owners policy. You get much more comprehensive coverages and may find it less expensive?

- Don't forget to consider an umbrella policy. Umbrella policies are secondary liability policies to your auto's / home / toys policy. They start at 1 million and can go as high as 5 million on personal lines. Commercial umbrella's can go much higher liability coverage. Remember, liability coverage is relatively cheap and its your best friend, don't skimp on this coverage.