Insurance for Rental Question

Raleigh, North Carolina
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Insurance for Rental Question

Stephanie KnightPro Member
Member since 2024 · 13 posts · 9 votes

I have an accepted offer and need to get insurance now. It will be a long term rental. I have reached out to several firms and the first one came back with a very high cost. I didn't give them much to work with other than the address, and my purchase price. I really didn't know what to ask for. I can live with a higher deductible, but I need to understand how much coverage makes sense.

Some info. Fuquay Varina, NC (not coastal). Single Family 3/2 Home; property valuation per county at 267 (likely a little high). House is 20 years old (and I will be replacing the roof).

Insurer quoted (with limits shown) below. Would like some opinions on these limits of coverage. Thanks for taking a look and offering thoughts. I need to nail down insurance this week. 

Replacement value of 267K (this seems high given that the land is probably 80K)

Personal Property 3K (appliances)

Bed Bug Infestation (do i have to/should I have that?) 5K

HOA Fines Coverages (there is no HOA; this can be removed) 1K

Limited Theft 3K

Ordinance or Law 26.7K (?? do I have to/should I have that?)

Vandalism or Malicious Mischief 267K (????? what is this)

Water Backup and sump overflow (10K)

Premises Liability 1MM per occurrence 2 MM aggregate (this seems high; but then again I carry an umbrella on my own home; so maybe this is right given I can't control who goes in and out of the rental besides my tenant)

Medical Payments 1000 per person/25000 per occurrencee

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  • Rod HanksBusiness Member
    Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
    1y

    @Stephanie Knight 

    Don’t worry, this all looks more complicated than it really is. The replacement cost is based on what it would take to rebuild the house, not the market value with the land. Personal property just covers appliances you provide, so that number is fine. You don’t need HOA coverage, and bed bug is optional. Ordinance or law is good to keep since the home is older, and vandalism just means you’re covered if someone damages the place on purpose. Liability is the most important part for rentals and your limits look solid. Some of these coverages come bundled in the package and can’t be removed, but the amounts can usually be adjusted.

    We’re independent brokers and would love to give you a few more options.

    Rod Hanks Insurance4.9156 Reviews
    WebsiteView Page
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  • Michael Murphy
    Investor · Buffalo · Member since 2025 · 45 posts · 27 votes
    1y

    Ask them if they have a discount for paying the policy in full for the year.  Ask about discounts for having your personal lines with that carrier.  Ask them if their system showed you having any claims and if they surcharged based on that.  I would start with whoever you use for your personal lines business.  Also, you can reach out to the seller and ask them who they currently have their policy through.  Some carriers have a strong appetite for a certain geographical area or dwelling characteristics.

    Replacement Value and the market value of a property are two separate concepts.  The replacement value of the property is what the insurer estimates it will cost to rebuild the property from the ground up.  If you had a total loss you could tell them to rebuild the house in the same spot and it would cover things like debris removal, regrading the land, etc.  The big thing to look for with that coverage is whether it is Replacement Cost (RC) or Actual Cash Value (ACV).  If it is ACV then they are going to deduct for depreciation.

    I have no experience with Bed Bug coverage.  I assume it covers the cost of exterminating bed bugs if you get them.

    Ordinance or Law 26.7k is probably quoted as 10% of your Replacement Cost.  That covers situations where you have a loss and the existing structure wasn't built to current codes.  They are saying that they would cover up to 26.7k in additional expense related to bringing the repairs up to code.  For example, say your property is grandfathered in, but current code calls for a 3rd floor fire escape.  If you had a loss and the 3rd floor had to be rebuilt they would not cover the addition of the fire escape unless it was under the Ordinance or Law coverage.

    Vandalism or Malicious Mischief (VMM) would be an added peril to the policy.  You would need to review the actual policy to see what perils are covered.

    Water backup and sump overflow would cover damages from water backing up through the drains in the basement or sump pump failure.

    Liability coverage of 1MM / 2MM doesn't seem high to me.  I want at least 1MM of liability coverage on a rental.  In fact, I think the liability coverage is as important if not more important than all the other coverages.  A tenant's dog biting someone worries me more than the property burning down.

    All of my responses are based on my experience in NY.  The insurance regulations and policies vary from state to state, and it might be completely different in NC.  I would ask the broker that prepared the quote for detailed explanations and / or ask for a sample policy jacket to review the exact language.  In my experience, the bulk of the cost is in your Replacement Cost coverage.  All of the other coverages might have a slight impact on price.

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  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    1y

    First, are you using a lender. Have them provide you with the specific specs for the policy. Grab your quotes and, if you've got a good lender, hook them up with the agents. Insurance has been blowing more deals lately than interest rate or taxes. The lender is going to tell you what policy limits you need to have and what deductible they will allow. 

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  • Stuart UdisPro Member
    Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
    1y

    Rod is correct, the replacement cost will be based on the cost to rebuild the home to its specs with new materials. With the rising construction costs this has greatly impacted premiums. You may request the carrier re-price the policy using a reduced replacement cost.  Alternatively, you may request a quote for the actual cash value which values the improvements based on the depreciated value. The best option is going to be circumstantial based on the property, but these are the two strategies that are often used for the owner of real estate that's valued considerably less than the cost to rebuild. 

    A few other considerations: 

    -Make it known to the carrier your lease requires tenants to maintain renters' policies with the landlord listed as additional insured. You want this anyway because this allows for certain coverage events to fall under the tenant's policy instead of your own. This generally means the lease should explicitly state the tenants' requirements (including the additional insured status). This should be accompanied by an endorsement, not merely an insurance certificate. 

    -You want an endorsement for loss rent coverage. This will provide loss rental income in the event the property becomes temporarily uninhabitable if associated with a covered event. This was missing from your coverage summary.

    - I am seeing this more with builders risk or vacant property policies but it's important to understand the carriers' expectations in terms of property condition and inspections. You can have two policy quotes that appear to have the same coverage on the surface, with one policy priced with a higher premium than the other. Most would gravitate towards the lower price policy. What if the lower priced policy sends out an inspector and turns over an extensive list of required corrections to keep the policy in place, whereas the more expensive premium policy doesn't present the same list of correct measures? The policy that is more expensive on its face is actually going to be the more cost-effective policy when accounting for the repairs necessary to keep the cheaper policy in place. A good broker will have familiarity with how carriers operate and will help a client make the most informed decisions. 

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  • Stephanie KnightPro Member
    OP
    Member since 2024 · 13 posts · 9 votes
    1y

    Great info all. I appreciate the reviews and tips as I'm never afraid to learn something new; and this is ALL new!

    1Reply
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