Insurance for the RE investor. Big differences! Be smart.

3 Replies | Dallas, Texas

I figured it was a good time to post here, since I had a conversation last week with yet another new investor client who got bad advice from their previous insurance agent. Most people don't know that your typical insurance agent from a big name company has very little experience in working with investors, especially investors that are also contractors or GC's. The needs of real estate investors are very different from the needs of "normal" insurance clients who just live in a house they own, and drive a few cars.

PLEASE, for your sake and the local market as a whole, only work with insurance professionals who can demonstrate a deep and thorough understanding of your needs as a real estate investor. 

It's VERY easy to get a bad policy for a great price. Unless you want the burden of trying to figure out yourself if you have the right insurance program, you need to be talking with me or another local insurance professional who is very experienced in the investor world.

Message me or reply to this if you have questions or want to talk further.

Your posting is very general.  I think it would help if you can give some specific examples of pitfalls to look out for.  That might help us get a better understanding of your concerns.

Thanks for replying, Neil. I was very general by intention. I find it better to engage with investors 1:1 or in small groups. But, since you asked, here are a few items to be very aware of when you're reviewing your insurance program:

Matching the property to the correct type of policy: Every type of property (single family, 1-4 multi-family, 5+ unit multi-family, vacant, rehab, commercial, etc. All have different needs and need to be matched up with the right type of policy. Most insurance professionals can provide a good policy for a traditional single family rental, but for any complex or complicated portfolios, you need to be working with someone who has specific expertise for the REI market and client.

Cause of loss form: There are three categories of coverage; Basic, Broad and Special. Each builds on the last. There are many concerns here, and restrictions that vary by company based on the age and renovation history of a property.

Valuation method: Actual Cash Value will deduct depreciation over time from your claim settle (which can be thousands of dollars), while Replacement Cost Value will not deduct depreciation, and will almost always result in a claim settlement being larger by several thousand dollars.

Theft Coverage: How does your policy handle theft claims? Are there restrictions on the circumstances where they will honor theft claims? Do they make a distinction between the fixtures and features of the property itself, and any tools/equipment/materials you have at the property? (**This is extremely important on rehab projects or flip homes)

Risk Management Concerns: Additional Insured designations, Hold Harmless agreements, Waivers of Subrogation, and other specific policy conditions and limitations. 

All of these items are critically important, and very few agents and salespeople from the well-known big national companies have the expertise and knowledge to provide good advice.

No mention of policies that do not pay in full or at all if the property is vacant for more than X days? Seems to me that is a pretty big pitfall for the rehabber.