All Forum Posts by: BreAnn Stephenson

I would agree with the above, but would also add there are some companies who have programs that are investor-focused and do not have the same limitations as carriers in the standard market. 

For example, you can purchase Named Storm (Hurricanes/Tropical Storms) coverage separately for coastal locations or Flood coverage separately for locations in areas that have a risk of river or flash flooding...or Earthquake too, though at times the cost for those coverages may be more than you'd like to spend... And with some programs, updates and age of the building or prior claims history don't have a bearing on insurability or rates... 

Even with the investor-focused programs I've seen there are some items that make coverage a challenge...

-student and/or section 8 housing

-vacation rentals

-mixed-use locations (barber shop downstairs, apartment upstairs)

Though all of those can typically be insured under commercial policies...

Here are the real "kickers":

-knob and tube or aluminum wiring (this is a BIG one!) - many carriers (dare I say, most) will not insure a location with this in place

-coverage for dog bites may be limited (or with some carriers, excluded)

-high crime areas may garner a rate increase and/or higher deductible requirement

-some may have concerns for high wildfire risk - drought has especially played a role in the last couple years and western states may be evaluated more carefully for this risk

 Hope that helps!

 My pleasure Dan! All the best in your investing!

Amen and amen to both John and Frank's advice here!!!

Hi Dan!

Great question here. :) The simple answer to your question is YES!

Here's why... though some policies have provisions written into them to automatically increase the dwelling coverage amount according to rules of inflation or some other factor each year, (or your agent may discuss coverage amounts with you at renewal) often policies do not include this provision. It is always wise to make sure that your coverage amounts are in line with the amount you'd like them to be insured for. (There are a variety of ways to insure an investment property for a variety of reasons but that would be a longer discussion...!) 

In terms of replacement cost, you will need to consider the cost to re-build (vs. market value). So, if your property were to burn to the ground today (let's knock on wood and cross our fingers right now that it doesn't!) what would it cost for you to rebuild (if you so desire or are required to in your area)?

Replacement Cost coverage also allows you to recoup any depreciation that might be withheld initially in your claims settlement so that your only out-of-pocket expense is your deductible... and, if your policy has a Co-insurance requirement (most standard market policies do) and you don't meet that requirement, you may be penalized for being under-insured and not get the full settlement available to you. For example, your policy may require that you insure to at least 80% of Replacement Cost value in order to not have a penalty... Something to be aware of...

So.................Yes, evaluate your coverage on a regular basis and make adjustments as needed... at least once a year or at any time the market or your investing strategy for a property changes...

Lastly, I will say that there are programs out there that are built around the needs of investors too... :)

Hope that helps!

-BreAnn

It may be difficult in the beginning to feel that you can hire someone who costs a little more because they are properly licensed and insured, but the risk that you take otherwise could take you out of the game before you even get started...and may impact your personal financial future for years to come. Where saws and ladders are involved, injuries have the potential to be quite severe. Either you secure a Worker's Comp policy for those you hire or use someone who is properly insured and licensed. Frank also has the right idea with asking to be added as an additional insured... it doesn't extend coverage to you, but you would be notified if their coverage were to lapse or be cancelled. Better to save up more funds so you can do things the right way than to be over-eager to begin, use someone inexperienced and regret it later... Talk to people in your local investing group... chances are they will have some good suggestions for you about which contractors are legit but won't break the bank. Good luck!

Hi again Ray,

You can certainly ask them about the $7500, but it just depends on how the policy is written as to how they pay out. At the end of the day, their job is to put you back in the standing you were before the loss occurred so always bear that in mind as the underlying principle, but again, if the payout schedule is unclear, just ask nicely and see what they have to say... Good luck!

Hi Deanna!

Glad that you seem to have a good relationship with your tenant. I would still recommend reporting the incident to your insurance agent just in case something were to arise in the future. That way they would have on record some basic details including the fact that you reported the incident in a timely manner to them... which, in some cases, can affect the ability to have coverage down the line depending upon the specific details of your policy. At this point you aren't filing a claim, simply putting them on notice that the incident occurred.

I hope that nothing comes of this though since it sounds like he was the one who took the unpaved route. Oops!

Hi Ray!

I think I can answer your questions pretty simply here. :)

1) As presented above, the insurer may pay the insured up to $9500 still. Bear in mind that the intent of insurance is to bring you back to the place you were before the loss occurred. It is not intended to bring you a profit but simply replace what was lost. They are not obligated to pay the full $9500 if you don't end up spending the full $19K on repairs, but would typically pay you at least the $7500 remaining of the Actual Cash Value settlement.

2) You can spend whatever amount you want to do the repairs, but the insurance company will pay no more than the total of the loss $19,000 minus your deductible of $1,000. So, total, they could pay out up to $18,000. Theoretically if so far the plumbing and water mitigation total $6000 then you would have $12,000 left that would be covered by the insurance payment to do your repairs. You can spend over that $12,000 if necessary, but they typically would only pay up to that total of $18,000 I mentioned as the deductible will always be applied.

2b) If you have what is called "Guaranteed Replacement Cost" then they would pay whatever it cost for the total of repairs minus your deductible. Not many insurers like to do Guaranteed Replacement Cost so it may be unlikely that you have that type of policy, but it is a valid question for your agent/the claims department.

3)Again, theoretically, they will be making another payment to you of $7500, regardless of receipts. If you spend under the $16,000 they pay under the Actual Cash Value payment (i.e. no depreciation reimbursed) then you get to keep the remainder... so say you end up being able to get everything done for $14,000, then you get to keep the remaining $2,000 which is not technically a profit, just that you were able to do the repairs in a more cost-effective way than the standard market price. That stated, yes, you are correct, in order to recoup the full $2,000 of depreciation, your total receipts would need to equal at least $19,000. That stated, if you submit receipts of $18,000 you should still be able to recoup $1000 of the depreciation... meaning it's not all or nothing in terms of recovering that portion... 

Hopefully the above makes sense. If it made it more murky, perhaps someone can explain it in a different way...ha.

All the best in your claims process!

 I would agree with David here. The DP1 is also known as Basic Form. Basic typically includes the following: Fire, Lightning, Explosion, Wind/Hail (but not Named Storm/Hurricane), Smoke, Aircraft and Vehicles, Riot or Civil Commotion, Volcanic Action, Sprinkler Leakage, Sinkhole Collapse, Vandalism/Malicious Mischief.

The DP3 is also known as Special Form and that gives you coverage for any physical losses not specifically excluded in the policy. That does NOT mean it covers "everything" but it is the broadest form of coverage available. Some important coverages gained under the Special Form are Water Damage (from a burst pipe for ex.) and Theft. One should still be careful in maintaining the heat in an occupied or vacant property or properly winterizing a vacant property though. Many policies will stipulate that heat must be maintained or the water shut off and the property winterized in order to afford coverage.

Definitely work with someone who is familiar with coverage specifically for investment properties. That stated, in some areas, because of a greater risk of theft, Basic Form may be the only type of coverage available for that specific zip code. RentFax is a good tool for gathering demographic information before purchase. Buying in better areas can help you with the availability of coverages too. 

Let us know how it goes!

Hi Andrew!

As someone in the insurance industry and specifically in loss prevention, yes, this is fairly common for standard carriers and also not unreasonable. If I were looking at this from a loss prevention standpoint I would be concerned about the state of the steps, for their structural integrity, the fact that there is overgrowth that presents a trip hazard and if the railing is not properly secured that might present some serious issues as well. Also, though it may not seem like as much of a hazard as steps, uneven pavement can cause slip and fall injuries and also provide a reason for an unscrupulous tenant to sue. I can see how the slope of the pavement right in front of the garage and at the corner where it meets the stairs might make an insurer nervous.

The thing is, even though they may be protecting themselves from taking on a risk, they are also helping you avoid a variety of losses with asking you take these preventive steps... We've unfortunately seen too many cases where a tenant can't, or won't, pay rent, and will use liability hazards on the property like this to either stage an injury or create a real one. And now the landlord owes the now-injured tenant money instead of the other way around.

Not saying any of that will happen to you or that you don't place great tenants, but if you are trying to think like an insurance company, you have to consider the worst-case scenario. They are trying to avoid a liability loss here and though it may seem like they are asking a lot, the cost to repair those items will likely cost you less money, hassle and stress than if an injury were to occur. Even if you lean on their insurance policy to help defray the cost...

Helping real estate investors, PM's and tenants prevent avoidable losses is what I research every day so if you ever have any questions, let me know!

Hope that helps!