Insurance Equality: Is It Even Real?

The main goal of any real estate investor is to increase their bottom line. In order to that, investors need to minimize costs to maximize returns on their investments. Insurance should not be one of those things you decide to flake on in order to minimize costs.

The short answer is no, insurance policies are not created equally. Insurance policies typically come in two forms: special form policies and basic form policies.

1. SPECIAL FORM POLICIES

A special form policy is considered the elite, high-coverage plan that most people think they have. This is untrue. In fact, a common mistake that most real estate investors make is choosing cheaper policies. Although special form policies tend to cost around 30% more than basic form policies, it’s because they provide more coverage.

Special form policies tend to cover all the typical major risks that accompany property ownership. However, special form policies typically exclude six categories of damage: mold and fungus, wear and tear, sewer and drain buildup, earthquakes, floods and intentional tenant damage. These are to be expected and as such, a skilled investor is already aware of these exclusions before choosing the right insurance policy for his building.

What is probably the biggest advantage of a special form policy is the fact that it covers theft. This alone attracts the majority of property investors into paying 30% more for insurance coverage.

1. BASIC FORM POLICIES

On the other end of the spectrum is basic form policies. Don’t get me wrong, basic form policies are great. They’re just, well...basic. In addition to the six excluded categories that a special form policy doesn’t cover, basic form policies also do not include: theft coverage, damage from snow and ice, water damage, and falling objects.

Most experts agree that the largest factor that investors face when choosing an insurance policy is whether or not they believe theft will be an issue. For higher crime areas, such as populous cities, theft is a risk that most investors don’t want to take.

Topic: Insurance Law, General Real Estate Advice

Source: Joe Fairless, https://joefairless.com/myth-busters-insurance-policies-created-equal/