Insurance policy question.. How much insurance should I get?

8 Replies

Need some advice when it comes to insuring a rental property...  I have a rental that would probably sell for around 200,000 if I sold it right now but my plan is to keep it and rent it out.  Would it be a bad idea to get 150,000 worth of insurance on the house in order to keep my monthly payment down.  

If you have a mortgage you will generally need to insure it for replacement cost. That amount depends on the rebuilding cost and not the value of the place.

If you do not have a mortgage you are generally free to insure it for whatever you want. Is a couple hundred in savings per year worth the added risk of paying $50K out of pocket? I'd be more inclined to tell a person who had numerous properties to underinsure. That way they spread the risk out and have meaningful savings. 

I use a 'waking away amount' eg on one property-replacement cost 2 mil-paid 650 3 yrs ago now generating 130k gross annual income so I have it insured for 1 million + 12 mo income loss at which point I would 'walk away'.

you might look into changing your deductible if you re looking to save money.....  but rebuilding is expensive now so I would what to insure so my asset could be rebuilt if it were to burn down for example.....  usually  this means insuring the home and not the land....  I also do a 10k deductible as that will save me a bit of cash and I have that saved.....  the best thing to do is call your insurance broker and ask them to quote the policy various ways....    if these are rental properties be sure you are getting LL /biz owner insurance...  not just property insurance. 

Personal risk is well, personal.  No one can answer this for you.  We have clients that self insure and we have clients that over insure.  Everyone's risk/benefit ratio is different.  As mary said you might be able to lower the rate by the deductible.  Just depends what you will do if you have a catastrophic event.  Demo it, sell the land and move on or try and rebuild.  If you would try and rebuild then you want to be sure you are covered.  Or not, you have other homes so maybe you do a hybrid of self insure and insurance.  

No good answer for you on valuing the actual building. What you should be focused on is your liability here. Your actual losses are limited if the building burns down or gets hit by a meteor. What you want to protect is your exposure to liability from a lawsuit by the tenant or someone else.

I carry 4 million. 2 million per property and another 2 million on a personal umbrella policy. There's not much difference in cost going up in tiers.

Buy as much insurance as you can reasonably afford if you're not wealthy enough to self-insure against reasonable possibilities.