Insurance Problem: I'm struggling to understand what I actually need for property insurance. I have three single-family rental properties (IA, IN, MO) and my primary single-family home (VA).
My IA home is paid off and valued at $160K; my IN home is in an LLC, 50% paid off, and valued at $240K; my MO home is newly renovated, 25% paid off, and valued at $150K.
I've called a number of insurance companies for quotes but they vary widely for each property. I'm also not sure what I need to get for coverage. And because of my net worth, I'm told I should have an umbrella policy. I'd like to bundle everything (to include auto) with one company if feasible.
The latest quote for my primary home is from the app Lemonade and was 50% less cost than my current provider USAA and they appear to offer the same coverage.
To make matters more confusing. I'm also trying to find auto insurance. My wife has a car but I don't. I just rent a vehicle when needed but want insurance to cover me when I rent.
Any advice on what I can read or where I can learn more? Many of the "Insurance" discussions on Bigger Pockets are outdated and don't talk about the use of new AI powered insurance (if that's even worth discussing).
Intelligent help would be greatly appreciated.
Hi Stefan! I just looked over your question and it looks like you've got a lot of different things going on.
Firstly, your rental properties will typically be looked at on a case by case basis. You definitely need a landlord policy on each of your rental dwellings. You'll want to make sure your homes are insured properly with enough building coverage. Typically, an agent will put in the specific details of each home into a replacement cost estimator. From that estimator, they can accurately determine how much coverage you need on the building. Some agents skip this step and keep the pre-filled defaults in your quote. Always ask how they determine the replacement cost of the home to make sure they are correctly assessing it. Also, you'll want to make sure that you have enough liability coverage on your policies to keep yourself out of hot water if anything ever went wrong.
When I look at a rental property, it is also important to make sure you get a DP3 (Dwelling Form 3) policy. With a DP3, you home will be covered at full replacement cost, instead of depreciated value. If you have a DP1 (Dwelling Form 1) or DP2 (Dwelling Form 2) your home is probably insured at depreciated value. DP3 policies are much more comprehensive as they also cover you with broad form coverage, instead of named perils. Basically, a DP3 policy is vital to making sure your properties are insured correctly. I see a lot of investors who carry DP1 or DP2 policies and don't realize the significant disadvantages of their policies.
On most insurance policies, the maximum liability coverage you can get it $500,000. I assume your net worth is above that number, which means an umbrella policy with liability limits of $1M or $2M might be what you're looking for. Umbrella policies are usually pretty inexpensive and can really help you in the long run. Bundling all your rental properties with your home & your auto is a great idea. But, I know of a couple carriers who sell umbrella that will cover policies on multiple companies. For example, If you have your personal auto & home with USAA but your rental dwellings with Farmers, there are companies that will sell you an umbrella policy to cover both USAA and Farmers.
On the topic of your personal home, I don't think Lemonade is a very reliable place to put your insurance. I've heard horror stories of Lemonade denying claims, cancelling policies, raising premium, etc. Lemonade is very good at selling basic policies at a cheap rate. They don't offer a lot of specialized coverages. If you're looking for a plan that will cater to you, you might want to look elsewhere.
Your auto insurance issue is something we see all the time. For you and your wife, it might be easiest if you both got a policy together with her car listed on the policy. Essentially, you have an auto policy with you, your wife, and her car. That policy will cover any car you rent since you have your wife's car listed on the policy. And, you'd be covered whenever your drive your wife's car.
I hope this helps you and answers some questions. I work with an agency based out of Indiana and we specialize in personal insurance and dwellings. I'd love to continue to talk if you have any additional questions.
@Stefan Shirley you need to learn about the various insurance options so you can scrutinize the quotes and policies you are getting from different sources and bring them to an apple-to-apple comparison. I suggest you read Every Landlord's Property Protection Guide: 10 Ways to Cut Your Risk Now (book w/ CD-Rom) - it has an entire chapter dedicated to insurance, plus since you have many rentals, you need to learn about the other ways to cut risks since soon you'll have to deal with the asset protection questions.
In short, cost is irrelevant if the policies are not the same and not offering the same coverage and deductibles.
The following is a post I sent to a new owner's question. Some of the info may be helpful in your case:
"I can give you some general info on insuring the property:
Here are some things to look for from an Insurance prospective:
1.Any in-ground tanks (active or inactive)
2.Any Knob & Tube or Aluminum Wiring
3.If built before 1978, does the building have Lead Safe certifications
4.Any wood stoves or secondary heating units. If so, were permits pulled & were they installed by a professional
5.Are any of the homes rented to students
6.Is there a flat roof
7.are there asbestos shingles - Heating systems- PlumbingSome companies will not write properties with systems that have not been updated
The Year that the following were updated (either partially or fully) would be good to know:
- Heating systems
Some companies will not write properties with systems that have not been updated.
As long as you are living there, the proper policy for a 1-4 family is a "Homeowners" policyc. If the property is solely tenant occupied you will be looking for a Dwelling/Fire Policy (may be called a Landorrd policy or similar name) or a commercial policy such as a Businessowners or Package polciy.
Most homeowers or dwelliing/fire policies include:
1. Dwelling (Building coverage)
The limit should be based on the Replacement Cost of the building (cost to rebuild with
the same kind and quality excluding the foundation)
2. Contents (Personal Property): most homeowners policies give a set % of the Building
limit for Contents. Dwelling/Fire policies requrie that you request a limit for conents.
3. Detached Structures: for other buildings on the property (ie. sheds & detached garages)
Again, there is normally an included limit of 10% of the building limit. That can be increased
4. Loss of Use / Loss of Rents: Normally, there is a 20% included limit. Loss of use is for
your additional expenses if you can not live there due to a covered claim (ie. Fire). The
Loss of Rents is for the loss of Rental income if the tenants can not occupy the house
after a covered loss.
5. Personal Liability: For claims due to Bodily Injury or Property Damage that you become
Liable for and which is covered under the policy. Companies normally offer limits up to
$500,000 but some offer $1,000,000. Buy the max.
6. Medical Payments: Provides coverage for an injury suffered on the premises. Does not
require proof that you were at fault. Used to keep small loses into becoming lawsuits.
Normally offered up to $5,000 but check to see if higher limits are available.
7. Deductible: This is not a coverage but rather your portion of a claim. Most better policies
will not have a deductible for either the Liability or Medical payments coverage. It will
apply to the other 4 coverages. You can select the amount of the deductible, usually
ranges from $500 to $5,000. The higher the deductible the lower your overall premium
but get quotes on all the deductibles you are interested in. Sometimes the incremental
savings from $1,000 to $2,500 or from $2,500 to $5,000 are too small to make the higher
deductible worthwhile. ***depending on how far the house is from the coast, you may
also be required to have a separate Wind or Hurricane deductible. Most times, the
deductible will be 2% to 5% of the building value. That is a significant amount
(on a $500,000 building that comes to $10,000 for 2% or $25,000 for 5%). A policy
with a higher premium may be a better deal if it does not have a wind deductible.
There are many endorsements that are available on the homeowners policy. Without
knowing the details I can not suggest which would be right to add on.
Several you should
pay attention to are:
- Ordinance & Law: Provides additional building coverage to deal with rebuilding cost
Increases due to changes in Zoning or Building laws
- Personal Injury Liability: Libel, defimation of character, wrongful imprisionment, etc.
(normally recommended, especially if you are a landlord)
- Water Backup: For water damage due to the backup of Sewers or Drains.
- Personal Articles: Coverage for belongings that have a special or collectors value
such as Jewelery, Furs, Fine Arts, Collectibles, etc...
Your age should not be a factor on the pricing but, depending on the company these other factors may get you credits:
- Insurance Score (company pulls certain info out of your credit report)
It is not your credit score but generally better credit will result in a better score
- Time at your job
- Education level
- time at current residence"
Although it would be convenient to have everthing together, you may find your best value is to quote each policy on its own. In the case of the rentals being in multiple states, some companies may only write in one or two of those states but still may have good quotes on the properties in their states.
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing