Homeowner Insurance for Rentals and Primary

[Stefan Shirley]

Insurance Problem: I'm struggling to understand what I actually need for property insurance. I have three single-family rental properties (IA, IN, MO) and my primary single-family home (VA).

My IA home is paid off and valued at $160K; my IN home is in an LLC, 50% paid off, and valued at $240K; my MO home is newly renovated, 25% paid off, and valued at $150K.

I've called a number of insurance companies for quotes but they vary widely for each property. I'm also not sure what I need to get for coverage. And because of my net worth, I'm told I should have an umbrella policy. I'd like to bundle everything (to include auto) with one company if feasible.

The latest quote for my primary home is from the app Lemonade and was 50% less cost than my current provider USAA and they appear to offer the same coverage.

To make matters more confusing. I'm also trying to find auto insurance. My wife has a car but I don't. I just rent a vehicle when needed but want insurance to cover me when I rent.

Any advice on what I can read or where I can learn more? Many of the "Insurance" discussions on Bigger Pockets are outdated and don't talk about the use of new AI powered insurance (if that's even worth discussing).

Intelligent help would be greatly appreciated.

[Rebecca Ford]

Hi Stefan! I just looked over your question and it looks like you've got a lot of different things going on. 

Firstly, your rental properties will typically be looked at on a case by case basis. You definitely need a landlord policy on each of your rental dwellings. You'll want to make sure your homes are insured properly with enough building coverage. Typically, an agent will put in the specific details of each home into a replacement cost estimator. From that estimator, they can accurately determine how much coverage you need on the building. Some agents skip this step and keep the pre-filled defaults in your quote. Always ask how they determine the replacement cost of the home to make sure they are correctly assessing it. Also, you'll want to make sure that you have enough liability coverage on your policies to keep yourself out of hot water if anything ever went wrong.

When I look at a rental property, it is also important to make sure you get a DP3 (Dwelling Form 3) policy. With a DP3, you home will be covered at full replacement cost, instead of depreciated value. If you have a DP1 (Dwelling Form 1) or DP2 (Dwelling Form 2) your home is probably insured at depreciated value. DP3 policies are much more comprehensive as they also cover you with broad form coverage, instead of named perils. Basically, a DP3 policy is vital to making sure your properties are insured correctly. I see a lot of investors who carry DP1 or DP2 policies and don't realize the significant disadvantages of their policies.

On most insurance policies, the maximum liability coverage you can get it $500,000. I assume your net worth is above that number, which means an umbrella policy with liability limits of $1M or $2M might be what you're looking for. Umbrella policies are usually pretty inexpensive and can really help you in the long run. Bundling all your rental properties with your home & your auto is a great idea. But, I know of a couple carriers who sell umbrella that will cover policies on multiple companies. For example, If you have your personal auto & home with USAA but your rental dwellings with Farmers, there are companies that will sell you an umbrella policy to cover both USAA and Farmers. 

On the topic of your personal home, I don't think Lemonade is a very reliable place to put your insurance. I've heard horror stories of Lemonade denying claims, cancelling policies, raising premium, etc. Lemonade is very good at selling basic policies at a cheap rate. They don't offer a lot of specialized coverages. If you're looking for a plan that will cater to you, you might want to look elsewhere. 

Your auto insurance issue is something we see all the time. For you and your wife, it might be easiest if you both got a policy together with her car listed on the policy. Essentially, you have an auto policy with you, your wife, and her car. That policy will cover any car you rent since you have your wife's car listed on the policy. And, you'd be covered whenever your drive your wife's car.

I hope this helps you and answers some questions. I work with an agency based out of Indiana and we specialize in personal insurance and dwellings. I'd love to continue to talk if you have any additional questions.