Home owners insurance

[Alex Sabio]

Hi, I’m purchasing a property in Huntsville, Al. My lender is asking for Home Owners insurance. Does anyone have any recommendations on how much coverage I should get for a rental property? Does anyone have any references or recommendations?

[John Mocker]

Alex,
First, will you be living there. The Homeowners Form in most insurance companies is for owner occupies properties. If not you need a Dwelling Fire policy or a Landlord policy (could be commercial or personal, depends on the company).

The following is from a prior post. I think it will help with explainations of the common coverage in a homeowners/dwelling Fire policy:

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, defamation of character, wrongful imprisonment, etc.

(normally recommended, especially if you are a landlord)

- Water Backup: For water damage due to the backup of Sewers or Drains.

- Personal Articles: Coverage for belongings that have a special or collectors value

such as Jewelery, Furs, Fine Arts, Collectibles, etc...

Your age should not be a factor on the pricing but, depending on the company these other factors may get you credits:

- Insurance Score (company pulls certain info out of your credit report)

It is not your credit score but generally better credit will result in a better score

- Time at your job
- Education level
- time at current residence

Good Luck