{"id":175773,"date":"2024-07-27T06:34:00","date_gmt":"2024-07-27T12:34:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=175773"},"modified":"2024-07-29T08:47:37","modified_gmt":"2024-07-29T14:47:37","slug":"4-common-insurance-mistakes-investors-make-and-how-to-avoid-them","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/4-common-insurance-mistakes-investors-make-and-how-to-avoid-them","title":{"rendered":"4 Common Insurance Mistakes Investors Make and How to Avoid Them"},"content":{"rendered":"\n

This article is presented by\u00a0Steadily<\/a>. Read our\u00a0editorial guidelines<\/a>\u00a0for more information.<\/em><\/p>\n\n\n\n

Making mistakes with insurance coverages when buying investment properties can cost you big time. We won\u2019t talk here about the really obvious ones like \u2018\u2018not taking out enough insurance\u2019,\u2019 or \u2018\u2019not taking out separate flood insurance,\u2019\u2019 because you, one, most likely have already heard about these or two, are unlikely to have made those mistakes because you can\u2019t even get your loan without mandatory home insurance coverage.\u00a0<\/span><\/p>\n\n\n\n

So, instead, let\u2019s cover the other areas that investors tend to overlook. They can be less obvious and seem less important, but trust us when we say <\/span>that they<\/span> can make your life miserable if you ignore them.<\/span><\/p>\n\n\n\n

1. Not Upgrading to a Landlord’s Insurance Policy<\/span><\/h2>\n\n\n\n

This<\/span> is easily the most common rookie mistake investors make at the beginning of their careers as landlords. <\/span>It can seem that so long as the property is covered by homeowner\u2019s insurance, it doesn\u2019t <\/span>really<\/span> matter who lives at the property.<\/span><\/p>\n\n\n\n

Actually,<\/span> it does, so much so that you may lose your claims for damages caused to the property by your tenants or other problems that occur while your tenants are living <\/span>at your property<\/span>.<\/span><\/p>\n\n\n\n

Landlord insurance is different from standard homeowner\u2019s insurance, <\/span>and it<\/span> covers both the property <\/span>itself<\/span> and the homeowner’s liability.<\/span> So, think of common scenarios like theft and break-ins, fires, plumbing damaged by a bad storm, and the loss of rent that can arise from your tenants having to move out after such an event.<\/span><\/p>\n\n\n\n

Let\u2019s imagine another scenario in which your tenant injures themselves while they\u2019re on the premises. If <\/span>you\u2019re not covered<\/span> by landlord insurance, you could <\/span>be sued<\/span> by the tenant and may have to cover their medical bills.<\/span><\/p>\n\n\n\n

You have to learn to think like a landlord. <\/span>While most investors realize that property maintenance is their responsibility, many don\u2019t consider the other possibilities or the fact that your tenants<\/span>, <\/span>to a certain extent<\/span>, are also your responsibility<\/span>.<\/span> Landlord insurance is the easiest way to keep peace of mind <\/span>in case something does happen<\/span>.<\/span><\/p>\n\n\n\n

Of course, landlord insurance only goes so far <\/span>in terms of<\/span> what it will cover. Landlord policies, like other insurance policies, come with deductibles, and coverage is typically limited to what are known as covered perils. Fire damage, burglaries, and <\/span>bad<\/span> weather <\/span>are typically<\/span> included<\/span> on that list. On the other hand, your tenant damaging your furniture is not, a point we\u2019ll elaborate on shortly.<\/span><\/p>\n\n\n\n

A quick look at <\/span>the declaration page of your insurance<\/span> will tell you if you have standard homeowner\u2019s or landlord’s insurance.<\/span> You can also call your insurance agent to clarify and discuss switching to the right <\/span>kind of<\/span> insurance if necessary.<\/span><\/p>\n\n\n\n

2. Not Understand the Limitations On Coverage<\/span><\/h2>\n\n\n\n

The second most common mistake investors make is assuming that landlord insurance <\/span>will cover just about anything that happens<\/span> at the rental property, including your tenant spilling red wine on a couch you put in your short-term rental.<\/span><\/p>\n\n\n\n

This<\/span> is a costly mistake as you <\/span>most likely will end up having<\/span> to clean\/replace the couch yourself.<\/span>  As a general rule, damage to personal property by tenants <\/span>is not covered<\/span> by landlord insurance. <\/span>Now, if the damage was caused by a covered peril, say, the couch burned down in a fire (that the tenant did not cause), then you <\/span>will be able to<\/span> claim for it.<\/span> <\/span><\/p>\n\n\n\n

This<\/span> isn\u2019t a cause for panic. If you own furnished short-term rentals, you can get personal property damage covered via <\/span>AirCover<\/span><\/a> and other platform-specific programs for short-term rentals. <\/span>You\u2019ll <\/span>just<\/span> have to purchase them separately from regular landlord insurance.<\/span> <\/span><\/p>\n\n\n\n

If you want to <\/span>educate yourself further<\/span> on what\u2019s covered by landlord insurance and what isn\u2019t, Steadily <\/span>recently made a valuable video <\/span><\/a>that breaks down some of the common landlord policy coverages <\/span>that<\/span> you need to know.<\/span> <\/span><\/p>\n\n\n\n

Bonus tip:<\/span><\/strong> We mentioned \u2018\u2018loss of rent\u2019\u2019 in our first point, and let\u2019s reiterate that the only loss of rent that landlord insurance will cover is the loss of rent related to a covered peril. So, a situation where a tenant has to move from a fire-damaged building qualifies. <\/span>One where a tenant <\/span>just<\/span> stops paying you rent does not.<\/span><\/p>\n\n\n\n

3. Not Realizing Vacancy Clause Time Limits<\/span><\/h2>\n\n\n\n

Most landlord insurance policies include a vacancy clause. This clause will cover the landlord <\/span>in case<\/span> it is impacted by several commonly recognized \u2018\u2019perils\u2019\u2019 during vacancy. These include vandalism, theft and break-ins, water damage, and sprinkler leaks. <\/span><\/p>\n\n\n\n

Many new landlords don\u2019t realize that this vacancy clause has a time limit, typically 30 or 60 days. <\/span>What that means is<\/span> that once the property has been vacant longer than the <\/span>time<\/span> period<\/span> specified in the policy agreement, you won\u2019t <\/span>be covered<\/span> for any of the \u2018\u2018perils\u2019\u2019 outlined above.<\/span> <\/span><\/p>\n\n\n\n

Many landlords who rent out their homes long-term may feel <\/span>that they<\/span> don\u2019t need extra vacancy insurance because their rental never stands empty for longer than a couple of months. <\/span>However, <\/span>if you own<\/span> a short-term vacation rental<\/span>, you\u2019re<\/span> much more vulnerable to the time-sensitive nature of standard vacancy clauses.<\/span> In that case, getting extra vacancy insurance is <\/span>a very good<\/span> idea. <\/span>This<\/span> applies to home flippers, too, as properties that are <\/span>being renovated<\/span> can easily be unoccupied for many months at a time.   <\/span><\/p>\n\n\n\n

It is always <\/span>very important<\/span> to disclose all <\/span>of<\/span> the specifics when taking out vacancy insurance because the coverage and the terms will vary depending on why you anticipate vacancy periods at your investment property. You also want an insurance product <\/span>that will cover<\/span> you for the <\/span>right<\/span> risks. Steadily, for example, has specific products for properties under renovation, fix-n-flips, and long-term vacant dwellings.<\/span><\/p>\n\n\n\n

4. Not Including Insurance Costs in Deal Analysis<\/span><\/h2>\n\n\n\n

Last <\/span>but not least<\/span>, not factoring insurance into your deal analysis can cost you a lot. <\/span>Depending on <\/span>where<\/span> your investment property <\/span>is <\/span>located<\/span>, the costs can vary considerably, and you <\/span>really<\/span> can\u2019t just ballpark-guess it.<\/span> State-by-state premium fluctuations<\/span><\/a> are significant. For example, if you live in Arizona, you may only pay $839 per year, but if you live in Florida, the annual landlord insurance cost will be closer to $1,722 per year. That\u2019s a huge gap. <\/span><\/p>\n\n\n\n

And geography isn\u2019t everything here. The age of the property and even what type of roof it has can significantly alter the premiums. <\/span>Obviously,<\/span> any investor worth their salt needs to know in advance whether landlord insurance will set them back an extra $800 or $2-3k.<\/span><\/p>\n\n\n\n

So, always factor landlord insurance premiums into your prospective investment analysis. Using a <\/span>landlord insurance calculator<\/span><\/a> or getting a property-specific quote is crucial for investors performing deal analyses on properties. And bear in mind that landlord insurance, because of all the extra coverage it offers, can cost <\/span>25% more than home insurance policies<\/span><\/a>. If you\u2019ve been budgeting for standard homeowner\u2019s insurance <\/span>up till<\/span> now, you’ll have to revise all your figures.<\/span><\/p>\n\n\n\n

Conclusion<\/span><\/h2>\n\n\n\n

Landlord insurance is essential for protecting your rental property against many common problems that can go hand-in-hand with having tenants. <\/span>Insurance is always about calculating risk<\/span>, and when<\/span> someone lives at a property who isn\u2019t the owner, that risk <\/span>goes up<\/span>.<\/span> It\u2019s not just because rentals often get damaged but because there are many logistical difficulties, such as when a rental property is damaged <\/span>and a<\/span> tenant has to move out, or when a rental stands empty for long <\/span>periods of time<\/span>. <\/span><\/p>\n\n\n\n

Because of the higher risks, landlord insurance will cost you more as an investor than standard homeowner\u2019s insurance would cost you as a homeowner. However, If you only take away<\/span> one important point from this list of common mistakes with landlord insurance, it\u2019s this: don\u2019t choose not to take it out. Landlord insurance protects you against the most unexpected events at your rental, which are often the costliest. It could even save your entire business.<\/span><\/p>\n\n\n\n

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This article is presented by\u00a0Steadily. Read our\u00a0editorial guidelines\u00a0for more information. Making mistakes with insurance coverages when buying investment properties can cost you big time. We won\u2019t talk here about the […]<\/p>\n","protected":false},"author":613674,"featured_media":175777,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7401],"tags":[],"class_list":["post-175773","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-insurance"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175773","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613674"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=175773"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/175773\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/175777"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=175773"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=175773"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=175773"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}