1st Investment Property in Contract - Advice with Insurance

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1st Investment Property in Contract - Advice with Insurance

Angela Pipitone
Member since 2021 · 2 posts · 1 vote

Hey all,

I have my 1st property under contract, it will be a rental (it is currently vacant). I'm trying to make a decision between a landlord policy or an umbrella policy and I'm leaning towards landlord policy. My insurance agent let me know I would have to raise all of my coverages in order to even get an umbrella policy (I have 2 cars and a primary residence that I pay state minimums on in insurance). I don't have much assets other then my house, my car is a 2011 and a 2010, not much value, there's about 20k equity in my primary residence and there will be 20k equity in my investment house. I guess overall I don't see the value in getting the umbrella, I feel like that's for more established investors with a higher net worth. The difference would be about $75 a month more for the umbrella, which would eat into my cash flow on the property. It is a rough neighborhood that I'm renting in.

I know ultimately this is a personal decision, but any experienced investors that could throw some thoughts out there so I can do some research, look at it from a different point of view and/or help me come to a decision would be greatly appreciated!!

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  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    4y

    Congratulations! 

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  • Bo Bond
    Insurance Agent · Plano, TX · Member since 2021 · 127 posts · 94 votes
    4y

    Angela,

    I recommend you visit with another agent (or two) about your exposures, and preferably one who works specifically with investors already.  See what they have to say and offer.  Options are always great.  I would certainly make sure one of them is an independent agent who can shop multiple markets and many different options on your behalf.  In most cases, a $1M / $2M liability policy is enough for someone with only a few properties.  You certainly want to ensure that both properties are adequately protected from physical damage (fire, lightning, water, wind, hail, theft, vandalism, etc.).  As you grow, you certainly want to look more into higher limits of liability or an umbrella policy.  You're correct in that this decision is completely up to you, but when it comes to umbrella coverage, I tell investors to think about these main items below when making their decision.

    #1 - How litigious is the state / area you live in (Google search it if you don't know)?

    #2 - How many dwellings do you own / rent (the more you have, the more you should consider an umbrella)?

    #3 - How affluent is the neighborhood your dwellings are in?  The larger and more expensive rentals will "likely" attract people with more means to sue you.

    #4 - Do most of your tenants have kids?  An injury/lawsuit that involves a child typically produces the more high-dollar claims.  

    #5 - Do you do short term / vacation rentals?  The more people you have coming and going from your dwelling, the more exposure you have.  

    There are always more exposures to consider, so don't stop here.  Each investor's situation and exposures are different from the next, but this should be a good place to start.  Also, make sure you completely understand what the umbrella coverage is providing excess coverage for/over.  Some personal umbrellas may "not" extend adequate coverage over your rentals.  Hope this helps!  Good luck!

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