Полезные типы страхования, которые должен знать и применять каждый грамотный инвестор в недвижимость

When you’re running a rental business, insurance (I.) is something that landlords sometimes save on. While it is true that I. event may never happen to you, it is also the truth that if something big-and-bad happens, it may lead to the entire loss of your business. A simple example is a wildfire, which eats up cities and buildings (and these events start being more commonplace year by year since nobody’s canceling climate changes or dealing with their triggers). Imagine that a fire or a tornado destroyed your entire commercial property so you only have a foundation left. If you don’t have money to rebuild everything from the ground, your business is lost and, in most cases, you’re broke.

What is real estate insurance?

To prevent such bad occasions from ruining your property, business, and life, insurance has been invented as a tool. It is broadly used in the US and other countries, where risks of damages are high. Damages may not be only caused by natural or man-made disasters: they also include coverage of risks of vacancy, cyber liability, legal risks, I. of commercial vehicles, advertising, property damage due to actions of tenants, and more.

Having types of I. coverage that you need will help you be covered should anything occur and not to pay too much money for the coverage of risks that you don’t need. For instance, that could be cybersecurity liability coverage, which protects you from damages due to data breaches and leakage but if you don’t have such data or do not keep important data online, you shan’t gain this type of I.

Below, we’re considering the most important options for insurance.

Real estate investor insurance types

1. The most important one and that you should always have at all times is fire and hazard I. Hazard I. is the one that covers the risk of damage and full destruction of your property due to fire (man-made or wildfire), lightning, hail, snow, wind, rainstorm, flood, tornado, tsunami, sleet, or other events of nature. Man-made fire I. is a must – you’d be frightened if found out the statistics of man-made fires annually in the US. As the numbers tell, catastrophic fire damages are not just ‘more than real’, they are an everyday reality for many of us. Hazard I. can also be a part of a broader “Landlord I.”, which bundles the coverage of several types of risks, where the hazard is just one of them. Bear in mind that Landlord I. typically doesn’t include losses of your tenants and your losses, which are other than the construct of a building (walls, ceiling, floor), so should you need to include possessions and appliances, this might cost extra.
2. Liability I. This is the coverage for all happenings that involve people and their belongings. That usually covers your tenants, their guests, and your workers, should they get hurt or their belongings are stolen. Most states in the US do not provide that a landlord should insure the belongings, so if your tenants want to have their own I., then they should acquire it on their own. However, Liability I. covers you if someone’s in a hospital due to some injury and/or files a lawsuit, requiring from you some compensation. Breakages of major engineering facilities. Water, sewer, gas, electricity – if they go down and it hurts anyone or anyone’s belongings, or make it impossible to continue living in your premises (or timely limiting such a possibility), then this type of insurance covers those risks. You should find out whether having such type of I. would be a good idea for you (financially) at the time you buy the property. You should carefully inspect the condition of those mentioned to tell, what the real risks are.
3. Rent default and vacancy risk. These need to be covered if not all of your tenants are super gorgeous in their solvency or if you don’t have 100% no-vacancy condition. Pet property insurance for investors. If you allow staying tenants with pets, you should consider covering their pets. This is usually made in two ways: coverage of losses caused by pets (chewed couch is something that every pet owner faced with at least once). Surely, we are speaking about those pets that are able to cause damage: cats, dogs, birds, rabbits, ferrets, pigs… That would exclude, maybe, only fish. The second way is to insure their life and health – should they fall off the balcony or something like that. But only if you’re not creating all the conditions to provide their safety (sometimes, even special certification may be required in order to avoid any possible lawsuits about pet’s death/hurt).
4. Partnership I. For instance, you’re running a business with some partner and they decide to go out of business. That could be caused by any reason, including their death. To avoid your partner’s relatives or other partners overtaking their share in your business, you could cover yourself with the appropriate insurance for property, which would allow you to buy out their share first in the line.

Tips on selecting the right insurance for investment property

1. Be honest. Don’t try to lower the cost of your I. policy while obtaining it by telling an insurance company this is not a business but private property. Remember that insurance companies make money in two ways: by collecting premiums and not paying for claims that were applied with wrong information./
3. Replacement cost. If that happens so your property is destroyed to the ground, you should have adequate money to restore it. That's why always re-estimate the real replacement cost of your property before you make a new policy and renew it.
4. Only pick those risks, which seem real and feasible for you, your property, and your area – to save money.
5. Pay attention to deductibles. If the coverage payments have large deductibles (over 15%-20% of the sum), this is not a good deal, as you’ll have to have a lot of free cash in your pocket to cover these deductibles. On the other hand, lowering them below the market-average level could result in an increase in the cost of the I. policy.