beware: landlord insurance policies do not cover theft/vandalism

44 Replies

I got a call from my tenant yesterday that the bay window in our rental unit has been smashed in by vandalism.  I submitted a claim to Allstate, and the promptly called me to today to let me know that my landlord's policy does not include the "extra provision" to cover theft and vandalism.  $4500 Bay window replacement bill - that's my entire year's cash flow for this unit gone, all because of some technicality that I wasn't even aware of.  Quite upset at Allstate at the moment for not informing me of this to say the least.  I can't help to start to think that insurances are in the business to collect upfront money while focusing their attention on loopholes and technicalities to avoid any payouts.

Perhaps I should get into the insurance business.  

Originally posted by @Bao Nguyen:

 I can't help to start to think that insurances are in the business to collect upfront money while focusing their attention on loopholes and technicalities to avoid any payouts.

Perhaps I should get into the insurance business.  

I'm very sorry that happened to you, and you are absolutely right. That's exactly what they're in business for. They couldn't stay in business by paying claims. We had a house trashed by an evicted tenant and was told that because it was the tenant that did the damage, it wasn't considered vandalism. I then asked that if the tenant had left the door open on the way out and a total stranger had come in to trash the place, would that be covered? Possibly, but I'd need a police report. Lesson learned.

Another rental property had the copper pipes stolen while it was vacant. We got a police report. Again, I called the insurance company (a different one for this house), and they said, nope, we were not insured against theft. Ok, how about vandalism, since a stranger did the damage to the boiler and radiators to get the copper? They asked if the damage included smashed walls to get to the pipes and/or broken windows or doors? Again, no, so tough luck to us.

And even if that *had* been done, with the deductible, we'd still have to come out of pocket significantly. I cut the insurance policy down to the bare minimum of liability, and put the savings into a reserve account to pay for whatever else might come down the pike. 

Insurance is the biggest rip-off going.

By the way, did you or your tenant get a police report? Just to be sure the tenant themselves didn't accidentally break the window and blame a vandal?

@Bao Nguyen  you write:

Quite upset at Allstate at the moment for not informing me of this to say the least.

Sorry, but I strongly suspect they did in fact inform you of the limitations of your policy.  Get out that little brochure they send you that describes your policy.  Read it.  I'm quite sure it outlines the coverages and limits of your policy.

Don't get me wrong.  I'm very frustrated with insurance companies.  They do everything they can to get out of paying.  But, as the buyer, it is your responsibility to understand what you're buying.  Read that policy.  I guarantee the insurance company put a LOT of time into it.  And I know from experience the insurance adjuster 1) has it memorized, and 2) will whip it out as soon as you ask a question and point out why you're not covered.  Sorry for your loss.  I've been there, though it was only a regular window. 

Does it really make sense to have fire insurance on every property you own, if you have multiple properties? How much is the annual cost for one house, and how likely is a house to burn down? If one has 30 houses, for example, and the cost per house for insurance is $700 per year, the annual cost for insurance is $21,000! I can buy another house every year for that amount of money. It makes more sense to "self insure" and use the money to buy an additional house every year. A blanket liability insurance policy is much more practical than fire insurance..

...and even if you do have a fire, unless  the property is a total loss, you will be coming out of pocket to pay the deductible. I would rather just pay cash to repair the damage, in that scenario.

@Bao Nguyen    I wrote and E book for Aussie investors on how to buy TK or out of area rental properties in the US and one of my chapters was how to deal with insurance and what you experienced is all too common... The other issue is in your policy it will state that  if the home is vacant for more than 60 or 90 days most of your coverage has lapsed as well.. Its important to know what questions  ask your insurance broker and then get the proper coverage.. Just like when many buy TK  and with some turn key companies they want you to buy the asset while its being rehabbed.. STandard insurance does not work in this case you need Builders Risk for coarse of construction and vacant house.. then write a new policy for the rental.. And again ask all the questions of the broker of what if.

YOur comment of there goes all my cash flow is very real and of course very common thing that buy and hold investors usually do not put these kind of issues into their cash flow projections... I just cringe when I see investors use something like 500 to 600 a year for ongoing long term maintenance in heavy rental or low end rental areas its just not accurate over time.

@Wilson Churchill prior to selling out of my large portfolio of SFR's we had about 350 of them so our insurance was running us 150k a year or more... I was going to move to only liability policy and self insure on fire and the rest.. AS with deductible failure to pay tenant damage we would save a lot over time.. I have had 2 properties in 30 years have fires that totaled the house... And of course we did not have institutional financing on the portfolio so we had some choice with insurance... For those that are paying cash for Cheapee rentals its defiantly a consideration... If you own a lot of them and can afford to take a loss on one.. AS it would not be feasible to rebuild a home you can buy all in for 25k.. I agree with your logic

@Wilson Churchill  You're absolutely right about not getting insurance if you own enough properties, unless the insurance company offers some kind of "bulk package" that is significantly less expensive per unit than normally.  Also, from what I've noticed, most of these insurance companies insure based on "rebuild cost", which is around $125/sqft in my city, while the houses I own (75yrs+ old) have a market value of $35-45k (or about $40/sqft).  I'm forced to buy too much insurance - it's ridiculous.  As soon as I hit 30 properties, I'm definitely going to call the insurer and tell them to get lost - self insurance is cheaper at that point.

@Jon Holdman  You're probably right Jon, they send out these policy packets which I never read - and I'm the type that reads EVERY word in a contract I sign my name to, unless that contract is a booklet like these insurance packets are.  I'm sure that packet states everything, but back to technicality - technically the insurance company is right, else they'd be sued and they'd change their ways by now.  But from an ethical standpoint, I can't help but feel this is a not a good and honest business relationship between me and the insurer.  For example, I point out to all my prospective tenants of extra expenses on top of rent: that their dog is an extra $20/month in rent and that they will need to purchase renter's insurance.  I didn't have to take the time to point it out because it's buried deep in the lease agreement somewhere in fine letters, but I feel it's just an ethical thing to do.  I don't get that same feeling with insurance companies.

Aly NA Yes, the tenants did get a police report.  They called me before the police, and I told them to call the police asap.  Ironically, this was the first thing the insurance agent asked me "Do you have a police report for the vandalism?".  Once they get the police report, it's proof it's vandalism comes the news : "I'm sorry sir, we like taking your up front cash, and I'm calling you on a Saturday because I can't wait to let you know you're not getting a dime from us so don't call us on Monday when we're busy coming up with more fine print".  Those weren't their exact words.  :-)

@Jay Hinrichs  Jay, you have some very good points - especially about paying $500-$600/yr on units I own that have a market value of $40-$50/sqft while the insurance company is quoting me based on re-build cost of $125/sqft.  I told them their crazy to think my property is worth twice what they want to insure for, and I even submit proof that my neighbor's home just sold last week at a high price of $40/sqft.  Regardless, they don't care, they quote based on re-build cost.  Is there another way to get more economical/less expensive/more appropriate insurance for rental units?  I only have 3 units now, but looking to build to 10 to 15 units in the next 12-24 months.  I've heard that insurers will offer "packages" once you have 10+ units, which is a bit cheaper, but I don't have exact numbers to know what "cheaper" means.  If it's a 10% discount, that "cheaper package" is moot, my rate went from $600/year/unit to $540.  Big deal.  Please share if you have strategies that are more economical and/or better coverage appropriate for rentals.

most of my insurance is an actual cash value policy. Replacement cost policies are much more expensive and some companies don't like to do them as they would have to pay say $120,000 on a property you just bought for $40,000 based on replacement cost. 

I think insurance is cheap considering. I just had my first claim ever this summer with a porch fire that ended up being a $30,000 claim all said and done. The best part was I met the fire chief at the fire who was looking to sell a 6 unit property that he and 2 other firemen owned so it worked out really well. My whole insurance experience was fantastic with attentive service and quick payment all around. I greased the wheels enough but my premiums have been paid for all my properties for years to come with this one claim...

You're probably right Jon, they send out these policy packets which I never read - and I'm the type that reads EVERY word in a contract I sign my name to, unless that contract is a booklet like these insurance packets are. I'm sure that packet states everything, but back to technicality - technically the insurance company is right, else they'd be sued and they'd change their ways by now. But from an ethical standpoint, I can't help but feel this is a not a good and honest business relationship between me and the insurer.

Why?  Because the agent didn't set you down and walk through policy paragraph by paragraph?  I do that with my tenants, but I've NEVER had an insurance agent do it.  The company TOLD you exactly what you were buying.   You assumed you were buying one thing and didn't bother to verify your assumptions using the information they gave you.    Where's the dishonesty in this situation?  I don't see it.

Your warning is a good one, though.  I would generalize that warning to say ALWAYS read through that little brochure from the insurance company for EVERY policy you have.  They're not all that long and they do tell you EXACTLY what you're buying.  If there's something you don't like, talk to your agent.  I have.  Not always to my satisfaction, but at least I understand the situation.

For instance, I know that if you buy a house in Florida (or anywhere, that's just the location in the news), buy insurance and a sinkhole eats your house, you are screwed.  Insurance will not cover that.  Maybe there are riders you could get specifically to cover that, but a standard policy (per my agent) does not.

there are smaller boutique insurance companies that will write those policies I think the companies  I fund pay around 300 to 400 per year per property.... I am the additional insured of course so I just look for basic coverage of the amount that I have invested into the project.

I have no interest in rentals any more sold all mine ( happiest day of my life)  :)  

You need to find one that will insure for cash value not replacement value as was stated. I only have 11 houses left to sell but they are 175 to 225k market value so I have full flown insurance on those.. the major issue in the mid west is wind and hail from my experience

@Jon Holdman  You're right, insurance company wasn't fraudulent per say - and like everything else in life, one needs to do their own due diligence.  But how much due diligence is appropriate?  After a certain point, it's too time consuming to be feasible.  I should have perused the policy booklet.  Imagine if you bought car insurance and someone stole your car and when you called up the insurance company they politely informed you that theft is not covered - it's only covered if trees fall on your car.   Why should property insurance be any different?  But it's all because I'm a novice at property insurance and not well versed with non-intuitive business practices.  When it's not intuitive, to me it's not 100% ethical.  But, unfortunately, we live in a world of fine print.    

I should have read our policy booklet in detail too, but when the adjuster explained that if a stranger had vandalized the house and not a tenant, and there had to have been a certain kind of destruction when the copper was stolen, I have to wonder if the booklet is simply a vague, interpretive guide...for the insurance company to spin to the situation. 

We, too, have certain properties that are only worth about $40K, and it makes no sense to spend thousands a year on insurance.

This is a great reality check for a first time investor (read: just closed on first property).  I definitely didn't read my policy line-by-line, but this has prompted me to do so...

@Bao Nguyen  

Sorry for the expensive lesson, but THANKS for letting us learn from your mistake!!

Insurance is for them, not you....everything covered is outlined in the policy mailed to you.....and how on earth is a window in any rental costing 4500 dollars???...just frame it in and get rid of it if its that expensive...damn.

Originally posted by @Seth Sherman:

Insurance is for them, not you....everything covered is outlined in the policy mailed to you.....and how on earth is a window in any rental costing 4500 dollars???...just frame it in and get rid of it if its that expensive...damn.

 That was my thought, too.  I've replaced more than a few windows, including some very large French casement ones where I had to cut concrete to get them in and never spent anything close to that.  Bay windows are nothing but three relatively plain windows and some framing.

Account Closed Own the Mercedes, but rent out the Chevy.  :-)  Point taken.  

2 good lessons in this thread - read your policy and find new ways to fix expensive items :)

@Tim Norris  can probably help you with the ACV policy. 

Be aware though lenders sometimes may balk at it. Even though they'll be covered they sometimes will want a higher limit. And the policy has a $3000 deductible minimum so it really is more for catastrophic losses. I did have one lender balk at the deductible since my loan requires a deductible of no more than 5% of the policy amount ($58K in my case) so I had to raise my coverage a little to go over the 60K threshold. But they have all three of my properties and my $1M liability policy on each property for about $60/mo in FL which tends to be a more expensive insurance state. I was getting more like $90-110/mo with just the basic $100K liability.

I haven't had a claim with them but am happy thus far, though I guess I could be singing a different tune if something catastrophic happens.

"$4500 Bay window replacement bill"

I would seriously look into some way of reducing this cost.

@Account Closed had a really good point - that you don't have to put in another bay window.

Thanks for pointing out that vandalism isn't covered.  That's something I wasn't aware of.  


Originally posted by @Aly L:

2 good lessons in this thread - read your policy and find new ways to fix expensive items :)

 And don't put bay windows in rentals! 

Seriously though, very good input here re: insurance. I am currently pricing out different companies and policies for a couple of my properties and I will be damn sure to ask all of these questions about specific coverage areas before agreeing to anything and I will also definitely be reading every single word of whatever annoying piece of snail mail, email or brochure they want to send me. Better safe than sorry.

@Jon Holdman    I hire an attorney for a few hundred bucks to read through my policies.. then I meet with my insurance broker then hammer it out... insurance is all about negotiations if you don;t know what to ask ... 

@Dawn Anastasi  Flood is a major issue... for sure. however unless your getting a loan from a major institution your agent is not going to run a flood report for you. YOu need to request it

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.