What to look for in insurance policy in Providence, RI?

Question

Hello all,

I am purchasing a multifamily property in Providence, RI. I have reached out to an insurance broker as well as gathering a few quotes from big name insurance companies. Would anyone have advice as to what are some key things to look for in an insurance policy? I understand that this varies from property to property and investor to investor, but the main data point I've been using to judge different policies is price. I've received quotes which are double the price of others. What would you consider to be must haves? What are somethings that might be superfluous?

John Mocker · Answer

Emiton,

Below is some info I've posted before on the different coverages and what they mean for a homeowners or Dwelling/Fire policy.  As long as you are living there, the proper policy for a 1-4 family is a "Homeowners" policy. If the property is solely tenant occupied you will be looking for a Dwelling/Fire Policy (may be called a Landlord policy or similar name) or a commercial policy such as a Business owners or Package policy.

Most homeowners or dwelling/fire policies include:

• 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.

Hope this helps.  If you have questions on any of the above info feel free to PM me.

Ryan Thomas · Answer

@Emiton Alves

Hey Emiton, I’m a commercial insurance agent who specializes in multi family. Most carriers are A rated or better and if your using a conventional loan then the lender will make sure coverage is compliant anyway. There are many bells and whistles on policies that you simply won’t ever use, but there’s a few key points that has been mentioned before such as premium, 100% replacement cost with no co-insurance, deductibles and more. The most important thing is to use an independent insurance brokerage with an agent who is knowledgeable and responsive. It’s easier for me to discuss specific coverages over the phone, but I email the details for reference as well. Let me know if you have any questions!

Emiton Alves · Answer

Thank you everyone for the replies! This is super helpful information.

Anthony Thompson · Answer

@Emiton Alves congratulations on your purchase!

As @Kevin White said, you definitely want replacement cost - as opposed to actual cash value. Replacement cost will pay you what it costs to repair the loss "like new", whereas "actual cash value" will only pay you enough to get it to the not-new condition (i.e., significantly less). Actual cash value is obviously cheaper, but just go with replacement cost - if you have a claim you'll be glad you did.

As far as some companies quoting a lot higher than others for similar coverage, sometimes that's a function of particular companies' exposure and risk in a certain area, and has nothing to do with you or the property. In other words, the company might already have a lot in that area and only wants to add more there (concentrating its risk even more) if it's particularly worth it (i.e., more expensive to you). While another company might have an entirely different portfolio and be willing to charge differently. That's why it's definitely a good idea to shop around a bit.

Kevin White · Answer

I always look to insure for 100% of replacement cost.  I also prefer a higher liability limit, usually $1M. (for example, if someone gets hurt on the property, what would your insurance company pay?).  Replacement cost is the cost to repair/replace the property, which includes materials and labor...sometimes this is confused with the "market value" which is different.  Personally, I like reputable companies with a local presence.  Kevin

What to look for in insurance policy in Providence, RI?

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