Is property insurance really necessary? Liability insurance?

Question

Hello Everyone,

I am new to this forum, wanted to say hello to everyone.  I have been buying and selling rental properties for the last 8 years. I am to the point where I have rental properties that are paid off.  I have 12 that are paid off at this time.

Do I really need to buy property insurance to protect the rental properties in case of fire, wind or storm? or should I save that premium on the side in case nothing like that happens.  What are ya thoughts on liability insurance?

Andy

Austin M. · Answer

Which insurance underwriters are you guys using?

Arlan Potter · Answer

I have had two fires in the last ten years, plus a couple hailed out roofs and siding. My claims have exceeded my premiums by almost 100%. I have a commercial insurance policy that is a flat stated value policy with 1m liability per property. In it past I have self insured on real cheap houses, but the insurance is so cheap, it just doesn't make sense to me not to buy it. Even for dirt cheap houses. In our area a tornado could actually take out a boatload of my rentals in a moment. Insurance is cheap ----------and totally unnecessary until the tenant burns the house down with a space heater, or a tree falls onto the house or lightning strikes.

Buy a stated value policy and worry less.

Fred Heller · Answer

Respectfully, I don't understand the logic of resisting a $500 homeowner's policy to cover an $80,000 home. Yes, chances are that you will never use it. But $500 is cheap, and you'll wish you had it when you're standing in front of an $80,000 burned out wreck. And even if the house is paid off, are you willing to shell $80,000 out of your own pocket to rebuild? If not, your only option would be to clear the land and sell the empty lot to a developer for a few thousand.

Jason Bott · Answer

I agree & understand on the absence of the property coverage.  The issue would be with liability coverage.

Example, if there is a claim and it only names the property owner, and not the management company, the claim will not trigger coverage under the management company policy.  The property owner would then need to sue the management company for negligence, and this is an Errors and Omissions claim, not a General Liability claim.  To make this even more difficult, you can not sue your self, even if there are 2 separate entities.

So in the end, if you want to protect the cash flow of the property, you need to either purchase the liability coverage for the property under the owner name or purchase the liability coverage for the property under the management company.  It's the same cost, just a different entitiy is paying for it.

Austin M. · Answer

Yeah but if the management/ maintenance company (myself) is negligent then the insurance claim can be paid by them. I dont see a need for the individual property insurance.

Jason Bott · Answer

@Austin M.

If you would want any claim on the properties to be covered, liability or property, you would then need to purchase coverage for those rentals.  You can do that through your personal name or through the management company.

Austin M. · Answer

I have no property insurance but I do have liability insurance.  However, I am going to cancel that as well.   Instead I started a property management and maintenance company with insurance.  The claims would be sent there that instead.

The comment above about the wiring would be covered by the maintenance company insurance.

Marcia Maynard · Answer

Require the tenant to get renter's insurance.  You'll be partially covered if the tenant does something that destroys your property.

As others have said, liability insurance is essential.  Don't rent a home without it!  Get an umbrella policy for at least 1 million.

Andy Bui · Answer

Thanks for all your inputs.  I'm going with no property insurance, but definitely liability insurance.  All the arguments are pointing that direction.  Property insurance for my property is about $500 a year, with 12 properties, thats $6k.

Duncan Taylor · Answer

Buy the minimum required liability on each property and then an umbrella.

Even if you put them in LLCs, even if LLCs offered the rock solid protection the gurus claim, you would still be exposed if you manage them in any meaningful way.

Liability coverage is cheap. Always, always, always have rock solid liability coverage.

Did I say, always? I should have! :-)