Which is the better insurance options

Question

I'm buying a SFH in Indiana. $90k , 50 yrs old, New AC/furnace, turnkey property.

Got some insurance quotes and trying to figure out which is the better option. Is it enough or too much coverage for an investment property?

Company A:

Dwelling - $100k

Personal property - $5k

Loss of Rents - $12000

TOTAL premium = $704 ($1000 deductible)

Separate Liability Insurance from Company A:

Occurence $500k

Aggregate $1M

Medical Payments $5k

Total Premium = $100

Company B:

Dwelling - $90k

Loss of Rents - $6600

Liability limits $1M per Occurance/$2M Aggregate

TOTAL Premium : $783.60 ($3000 deductible)

BreAnn Stephenson · Answer

Hi Jen!Some things to consider:1. Are both property policies written on the same form...i.e. Basic Form has less coverages than Special Form for example. Basic Form doesn't include Theft, Water Damage or Falling Objects for example... If they are different from one another, you'll just be comparing Apples to Oranges...2. You will also want to know if the policies are written on a Replacement Cost (RC) or Actual Cash Value (ACV) basis. Replacement Cost will make any depreciation they subtract from a claims settlement available to recoup after the repairs are made, vs. ACV where any depreciation will not be able to be reimbursed to you. Depreciation accounts for the usable life left in an item... for example if a roof has a 30 year life and you installed it 10 years ago, in an ACV situation you would only be reimbursed for the 20 years of usable life... in other words, they would subtract 33% from what it costs to replace the roof... Again, if not the same, you are comparing Apples to Oranges.2. Is the Loss of Rents coverage over 12 months or 6 months? In the case above, I would guess that policy A is 12 mos. vs. policy B is 6 months... not really too big of a deal there, but just know that this coverage is usually paid out as it is incurred, meaning that they won't just automatically include that in a payout unless you've actually lost money from having to move your tenant out.3. I noticed that there is personal property included in policy A. Make sure that this policy is written on the correct form... if it is a Homeowner's policy (HO-x) then really you have the incorrect type of coverage for an investment property. You shouldn't really have a need for personal property coverage unless you are furnishing the place yourself.4. Difference in liability coverage... what is the cost from company A to match the same limits as company B?5. Difference in deductibles is really up to what you can handle. A typical rule of thumb is to take the smallest claim you would file and double it.6. Thinking of insurance as what you will lean on for catastrophic losses will help you as you go along. It's not meant to be there for regular maintenance which should be a part of your planned financial expense for the property. Claims frequency is a killer so reserving your insurance for larger losses will help you retain stable premiums and continuous coverage.7. Does Company A or Company B specialize in insuring investment properties? Do they offer monthly billing? The ability to insure the property if it goes vacant? Can they insure renovations? How easy is it to add coverage if you keep purchasing? Etc....Hope that helps!-BreAnn

Tim Puffer · Answer

@BreAnn Stephenson - Solid job! I'll add in a few things - option 2 sounds like it is a Foremost Insurance Quote, or a commercial quote. @Jen Pothilat you definitely want to make the distinction between a personal policy and commercial - there may be some coverage restrictions on the commercial. You also want to really think about insuring all your properties separate, not only for the liability issue mentioned, but if you were to file too many claims on the policy you may be canceled. Even if you were to have claim on say only one house and 10 houses had none! I would still include some personal property coverage - most policies have $5,000 built in. What if you are doing some work at the property and you have a bunch of tools stolen? You probably wouldn't want to claim those on you primary insurance from the home you live in. Additionally, there could be coverage restrictions in that situation.

BreAnn Stephenson · Answer

My pleasure Jen! And yes, co-insurance is also something to consider too. In that vein if you can eliminate co-insurance that always seems to be best for investors. If you are under insured at the time of a loss in addition to applying depreciation and subtracting your deductible you may end up with a penalty if you're not careful.What I was wondering on the liability for company A is what the cost is if the limits are increased to the same amount as company B... to the $1mil/$2 Mil... also, some companies will give you the $1Mil/$2Mil for EACH property and not just that limit for all the properties combined. Be careful that you aren't reducing your benefit as you add properties to the schedule. ;)Good luck!

Jen Hoang · Answer

Thank you so much @BreAnn Stephenson! What a detailed reply. For the Liability coverage from Company A, they said I can keep adding properties to that policy and it will cost $40-$50/yr per house. There's also another policy with co-insurance that I did not list. Too many options and so many things to consider, it's mind boggling!I will take all this into consideration, Thanks again!!