Do I need insurance?

13 Replies

Better question, do you have the cash on hand to completely rebuild the property if a tornado knocked it down tonight during a storm? If the answer to that is no, then def need insurance. If the answer to that is yes, then I still carry insurance to protect my asset.

Need is a very strong word. There is no requirement to carry insurance on a paid for property however you need to weigh the risk before doing so. Some larger investors will choose to not carry insurance and instead self insure the risk since they can afford to do so. If an investor has 500 houses it may makes sense to them. The annual insurance cost may be more than their claims so they opt to not pay the insurance. If a small investor has all of their eggs in one basket with one paid for property a large claim may be more risk than they are able to take. It is all about doing the math to see if it is worth covering the risk yourself. 

-Seth

Yes. What if someone got hurt and sued you? You would want insurance then.

Then there is the fire, tornadoes etc that could damage your house. 

We have a few clients from overseas that "self insure" but unless you are sitting on piles of cash it is an excellent idea to get some.  Both for the structure and liability.  Never forget 2 years ago I think I had been pestering this client to get insurance on her 5 homes, she finally agrees to get insurance on 3 of the 5 and within 1 week 1 of the homes was vacant and burned to the ground. Would have been a total loss for her and come out of pocket to do the cleanup....but this was 1 of the 3 she insured.  Now, all 5 have it : ) 

This is a cost / benefit calculation that you need to decide on what is right for you.  That said, yes, you need to get insurance!   

If you're looking to save some money, consider getting a high deductible on your existing policy. Going with a $25K deductible would dramatically reduce your premiums. Even for people who have a mortgage and their lender requires a lower deductible, this can be negotiated with the lender. I've done it. 

One thing I didn't see mentioned in other posts that is very beneficial with insurance is that they have a duty to defend you. If someone sues you, it's not just the judgment (if any) they will pay, but they will cover the attorney fees, expert witness fees ($5K for a doctor), court costs, etc. A small matter can easily create tens-of-thousands of dollars in legal costs. 

My thoughts are I’m not sitting on piles of cash to afford major damage or claims so I need it plus my lenders require it.  Assuming I owned free and clear but had the reserves to cover major damages I don’t think I’d really be concerned with the yearly fee and would pay it for peace of mind.  It’s only 650-900 in my area per year so it isn’t a major cost.  I suggest maybe shopping around to see if you can get it lowered I switched and saved about 500/ year/ property for identical coverage.  

Insurance is to protect you from things that you can't cover yourself out of pocket. Catastrophic damage to a home is one of those for most people. Extended warranties on electronics...pass

@Hanna Minkin You should have a policy (or separate policies) of Landlord's insurance covering all of your rental property.

Also, my standard lease provides that it is mandatory for my tenants to maintain Renters Insurance during the term of the lease and any extensions thereof.  In addition to coverage that is helpful to my Tenants, I require their Renters Insurance to include $300,000 in liability coverage.