RENTAL PROPERTIES INSURED WITH PERSONAL HOMEOWNERS POLICY

Many real estate investors, especially new ones, think that it’s perfectly fine to purchase a rental property in their personal name and combine it with their personal home insurance.  While it may be cheaper and initially easier this idea is full of problems.

First, it’s never a good idea to purchase an investment property in your personal name.  Asset protection is all about “compartmentalization.”  The more compartmentalized your assets are the more protection you have.  Get with your attorney about setting up the property entities to hold your properties.

Just like separating your “ownership” of the properties, you must separate the insurance from your personal coverage.  By separating your personal homeowners policy from your investment property policy you are putting another “wall” of protection between a claim and yourself.  Using your personal dwelling policy to cover your investments requires the liability to be extended from your homeowners policy thereby exposing you to more risk.

Aside from the extra exposure when combining personal and investment coverage, we must look at the coverage itself to be sure it’s sufficient for investment properties.  Many coverages that are vital to rental property are either missing or need to be purchased over and above your homeowners policy.  We suggest utilizing commercial policies that have these rental property specific coverages built in.

Any connection between your investments and your personal assets can be utilized by the other party in case of a claim or incident.  By combining your personal and investments in the same policy you are exposing yourself to unnecessary risk.  It’s your livelihood so be sure to protect it properly.  Find an insurance advisor that has investment experience that can show you how to best protect yourself.