All Forum Posts by: BreAnn Stephenson

Hi Denise!

First of all, good place to pitch this question... I have a couple of thoughts coming from an agent's perspective.  This is a mini-book, so sorry about that...

1. The cost of insurance in Houston can be more costly because you are in an area that is at a higher risk for hurricanes.  If you are including coverage for this peril, the cost is going to be higher.  This policy does include coverage for windstorm, hurricane, and hail.  The cost doesn't seem excessively high to me, but I would like to see what others from Houston have to say too...

2. You could choose a higher deductible if you wanted to lower the cost, but that is up to you. You don't want a deductible that you can't "afford" in the event of a loss, but if you are going to make most of the smaller repairs without leaning on insurance (which I would advise to keep your rate more steady), you may be able to take on a higher deductible, say $2500 or $5000, for example.  Some of our investors even have a $10K deductible.  

3. It appears that you may only have Basic Form coverage by the looks of your declarations.  Basic Form may be fine or you may want to choose a policy format, like Special Form, that offers coverage for additional perils such as Theft or Water Damage.  Just be sure that you know what is -and isn't- covered. 

Side note: Damage caused by water driven by wind in the event of a hurricane may be covered by the Windstorm peril, but that would differ from say, a burst pipe causing Water Damage.

4. You still may even want to purchase a Flood policy as rising waters during a storm event due to the overflow of rivers, etc. is not covered under the Windstorm or Water Damage perils.  Confusing I know, but Flood is always covered separately.

5. It appears that your liability limits are pretty low at $100,000.  I might advise increasing that to $500K or $1 Million as the cost difference should be negligible and if you do have a liability claim where someone is injured, the costs can escalate pretty quickly depending upon the severity of the injury.  In our Program we have a standard $1 Mil. per Occurrence/$2 Mil. Gen. Aggregate and then investors can add more if they would like.

6. As for the amount of property coverage (your current $120K), that really depends upon the investment and if you would plan to rebuild or not.  It can also depend upon how old the items are in the house..i.e. did you completely rehab from the studs up or did you do just cosmetic work... whether you have an Actual Cash Value or Replacement Cost policy, the first check you would receive would be based on the depreciated value of the items damaged.  If the items damaged are brand new, your aren't going to see much, if any subtracted from the settlement for depreciation.  On the other hand, if items damaged are older, you may see more subtracted as they have less "usable life".  With a Replacement Cost policy, you would be able to recoup that depreciation once your repairs were complete, but with an Actual Cash Value policy, the payment stops at that first check. I would check with your agent to see what type of coverage you have as ACV and RC can be very significant in a claims settlement.

7. An additional note on property coverage.  For some investors, they are simply wanting to make sure the amount they invested is covered if there is a loss... so they could bulldoze the rest, clear the lot and purchase something over 1 block.  They may decide to insure for their total invested capital only.  However, for those doing longer-term holds that have a high-return investment, they would want to insure the property for the amount it would take to rebuild it.  In that case, the market value and the insurance value could be quite different...Right now the cost to rebuild is typically higher than market value for example...

8. If you are simply doing cosmetic work to prepare your property to be rented, you should be ok with the type of policy you have as "tenant-occupied", as it should give you a little time to do "rent-ready" types of items like paint and carpet, etc. If you are doing true renovations like full bathrooms, kitchen and/or any structural work, you really want a builder's risk policy. Sometimes agents will slide renovation activities under the "rent-ready" category and that can put the insured at risk for having no coverage at all in the event of a claim as they are not insured under the correct type of policy.  Again, check with your agent to be sure that you have adequate coverage for the type of work you are doing.

Ok, so again, sorry for the book there, but there is so much to consider with insurance.  After you learn the ropes, it won't seem so complicated too... Hope that helps and I hope others chime in with their advice and feedback on the cost as well!

Cheers, BreAnn

Completely agree with the rest of your post and thanks for giving clarity to the above detail Derek.  I would also agree that a landlord should have protection against wrongful eviction (or accusation of such)... what I was speaking to was simply pertaining to premises liability coverage only... in our Program, an investor would have premises liability and then would obtain a separate CGL for any risks associated with his/her business practices.  Hopefully that makes a little more sense.

 Hi Jeff!

Yes, I would agree that hiring a GC is not appropriate for every repair that needs to be done (that would be crazy, I agree!), and I'm glad you called your company.  Reviewing your policy to see exactly how the policy reads in the section talking about hired workers is also a good idea as well. 

Coverages can differ in this area, but my point is really to give everyone a head's up that one can't just assume that coverage is available.  Whenever a specific coverage is excluded, it usually means that the coverage is picked up under a different type of policy...underneath the contractor's own liability policy, for example.

I'm simply suggesting that it's wise to hire someone who is properly licensed and insured for the type of work they are doing. You don't have to be licensed to perform many kinds of work, but that doesn't mean that still being insured isn't a good idea...

 In addition, for independent contractors who aren't doing work with load-bearing structures, the cost of insurance is really very minimal....~$60/mo. when my husband was doing his own independent contracting a couple years ago, for example... in my opinion, there just isn't really any good reason for a reputable contractor to not have it... it protects them and their clients, and shouldn't significantly increase the cost of hiring them.

The pitfall is that many investors just assume that their policy will cover faulty workmanship of those they hire or injuries on the job-site when the coverage actually may not be there... just wanting to make sure that everyone reviews what they are sold so that there aren't any wicked surprises in the event of a claim. There is nothing worse than thinking you are covered for something and then having to bear the full weight of the expense when you find out you are not...!

Hi Stephen!

Liability coverage is actually pretty simple in comparison to the property coverage on your locations.  It usually has the following categories:

1. General Aggregate (Total limit for the policy period)

2. Per Occurrence Limit (Limit per incident)

3. Products/Completed Operations (For completed work on the property - usually a contractors GL policy will have this limit to cover their workmanship so it may be excluded from some policies out there for an investor.)

4. Personal/Advertising Injury (For acts of false advertising/slander. That would be if you were harming someone else through your business methods, so can be excluded for properties.)

5. Damage to Premises Rented to You (Doesn't usually apply for investors as this has to do with space rented to you...like if you rented an offsite office and caused fire damage to it.)

6. Medical Payments (A "good faith" payment, not subject to deductible that the ins. co. could make in order to avoid a lawsuit...if you do not have this limit in your coverage, don't fret. Payments for medical expenses would be paid under the per occurrence and general aggregate limits.)

7. Deductible (Your out-of-pocket cost if you are liable for damages to another party's property or for bodily injury.)

Sample limits might be as follows:

1. $2 Million

2. $1 Million

3. Excluded

4. Excluded

5. $50,000 (or Excluded)

6. $2,000

7. $1,000 (or could be $2500 maybe)

Bottom line: You want premises liability coverage for your properties because though liability claims are more rare than property damage, they can be the type of claims that could take you out of business if someone is hurt. And...as you can see, the cost is pretty low.  You can usually get $1 Million per Occurrence/$2 Million Aggregate for $100/year per property or sometimes less if you have a company that is also providing the property coverage too...

One last side note: Premises liability typically will not cover:

-Any contractors working on a property (they should have their own coverage for their workmanship and/or workman's comp)

-Anyone else hired by you to do work on the property (i.e. don't hire your friend's kid to do work on the property as you are opening yourself up to risk)

Cheers, BreAnn

Glad to hear it Ryan!  Always here to help... cheers!

-BreAnn

That makes sense, thanks for clarifying Douglass.  Definitely still sounds high to me.  There are programs that are national in scope that contemplate the neighborhood (i.e. compares Minneapolis with other Minneapolis locations) for the purpose of underwriting, but still should be less than what you are currently paying.  And for like, or better, coverages... 

What deductible do you have out of curiosity?

PS, you will also have premises liability coverage for your flips too in case a 3rd party guest is injured on the premises.  (Again, usually a limit of $1 Million is a good standard limit.) Usually this liability excludes the workmanship and injuries to contractors as they should have their own general liability and/or workman's comp. coverage to take care of those items. This would be if a kid playing in the neighborhood decided that your front steps make a great skateboard ramp or if Sally the Potential Property Purchaser slips on the ice while you are showing her the property.

-BreAnn

Thanks for clarifying Ryan, that helps!

In terms of protecting yourself from a business standpoint, professional liability coverage is what you would be looking for and/or Errors & Omissions coverage (E&O for short). That stated, sometimes it can be difficult for flippers to find coverage for their selling activities. It just depends on the carrier, really, and often times they will only insure the business activities of landlords or licensed realtors. I would look around and see what you can find, but using that verbiage will get you a little further in that arena.

When it comes to tenants on the other hand, there are two different categories of risk to be protecting yourself from.  Firstly, if regarding any business activities, say, a wrongful eviction, or something of the like, that would fall under the coverages discussed above. 

The other item that your tenant might want to sue you for is an injury on the premises. That being the case, you will want to make sure you have adequate premises liability coverage on each of your properties.  Typically you will have both property coverage and premises liability coverage together under a single policy for a specific location, or if you are on a master policy your property and liability coverage may be separate.  

In either case, typical levels of premises liability coverage are $100K, $300K, $500K, $1 Million, $2 Million... you can get higher liability limits than that (via an umbrella that jumps in to assist once the underlying liability limit is exhausted), but typically most investors have  at least $1 Million per unit.  If you have a 4-unit property for example, you will need more liability coverage than a single family property because you have more people coming and going and thus, more potential injuries that could occur.

The best advice I can give, however, is to be diligent in your business practices and in maintaining your properties.  Insurance should be utilized for items that could "take you out" and are unexpected, but nothing beats a good risk management plan. Happy to help with some ideas for that too in a different thread... or perhaps that would be a good first blog topic for me to do... :)

Hope that helps!

-BreAnn

Hi Douglass!

From what you describe it does seem high.  That stated, there could be some factors that could make the cost higher depending upon the area the rental is located in or with some companies age is a big deal.  For some, the distance to the nearest fire station is also a big thing.  Your deductible might play a factor if it's very low one... 

You did mention having $2K of personal property coverage, which makes me wonder if you have a homeowner's policy covering a rental location.  Not sure what you would need the $2K in personal property for as your tenants should have renters insurance to cover their personal belongings.  

I could tell you more if I were to look at the declarations page, but it definitely sounds like you could use to have your coverages reviewed at least.  You may/may not have the correct type of coverage for your rental.

Hi Ryan!

When you say "Umbrella" insurance policy, what precisely are you wanting to protect?  Are you wanting to increase your liability coverage for all your properties, say from $1 Million to $2 Million?  Or are you wanting to "consolidate" your coverage for your properties into a master policy instead of having individual policies for each individual location?

Just wanted to clarify as there can often be quite a bit of confusion surrounding the term "umbrella." Wanted to make sure I was answering the question you're actually asking. :)

-BreAnn