All Forum Posts by: Kristine Hodges

Rule of thumb is not a good idea here.  Talk to your local independent insurance broker for a recommendation on what to expect.  Then once you have a property picked out, get several quotes to review.   If you are in a high risk area for hail, hurricanes, tornado, or flood, you could have much higher than expected premiums that could make the deal unprofitable.  Take the time to get an actual quote instead of a guess.  

Quote from @John Mocker:

Don,

The Renovation Builders Risk policy rates are going to depend on a number of factors:

1. Value being insured (both for the existing structure and the work being done to it)

2. what type of coverage (Named Perils vs the better, Special Form)

3. Deductible

4. Fire protection of the town

5. Other location factors (wind storm for coastal or tornado areas, wild fire risk, etc.)

The only way to estimate the cost would be to use a similar property's rate in the same town.  If you are concerned that the rate is high, get comparisons (if you are using an independent agent ask what other quotes they got to see how much they shopped it)

For the flood insurance, be sure the agent shopped it with a lot of the "private market" (non FEMA) insurance programs. I've seen differences of thousands of dollars between the rates on the same property. These Private Market carriers use their own algorithms to calculate the flood risk so there can be big differences in the rates.

 Great advice John.

Where do you get $150 for your budget estimate?  Was it based on a similar property or an agent’s preliminary quote?  You can’t make it be $150 just because that’s the number you picked out randomly.  Your budget estimates need to be based on actual local data.  Insurance rates vary widely based on many factors, so a rule of thumb percentage doesn’t always work well.  

The property manager will still have their own commercial liability insurance.  In fact, you should ask to be named as an Additional Insured on their policy as well.  It is good extra protection for both of you.  Talk to your insurance agent for a more detailed explanation of how it specifically benefits you and them based on your actual policy.  

Quote from @Caleb Smith:

My business partners and I recently formed an LLC to own properties. Right now, we have one property that we own together. We created the LLC for asset protection, but really want to make sure we are doing things right.

Just curious, what type of insurance do we need as an LLC?

Should we also have our own umbrella policies?

Just looking to get a better idea on what should be in place to protect ourselves.

The policies you need will vary greatly depending on your situation.  Definitely talk to your insurance broker for details.  In general, the policy needs to be for your LLC specifically.  A policy in your individual name does not typically cover any LLC activities or properties because the LLC is a separate legal entity.  An umbrella is almost always a good idea for each individual and for the LLC itself. Did you move the property into the LLC?  Unless it is actually titled to the LLC, the LLC doesn’t really do what it is designed to do.  Be sure you know the status of the LLC and property ownership details when you talk to your attorney and your tax advisor and your insurance broker for the best advice.  If you can get them all in the same room (or phone call) at the same time, even better. 

A certificate of insurance is just proof of insurance.  It doesn’t give them any additional rights or coverage under your policy.  It just confirms that you do have coverage.  If they are asking to be named as an “additional insured”on your policy, that is a whole different situation.  A.I. status would be shown on a certificate of insurance and does provide additional rights and coverages to the named A.I.  Talk to your own personal broker about the request.  They can prepare a certificate of insurance that only lists the specific coverages and policies that apply to that location.  You don’t have to share all of your insurance coverages available to your other assets.  

What is your comparison point for “the quotes are high in my opinion”?  Insurance on a house flip is much different than a homeowners policy for the same property. The premium is higher to account for the risk of liability due to lots of people in a job site with many tripping hazards and other construction site hazards.  The property insurance (builders risk) is much higher due to the increased fire hazard of a building under construction, theft potential due to building materials stored on site but not yet installed that are easier to steal, and many other reasons. You may need to adjust your expectations.  You can try a different broker to get quotes from more companies.  But if your broker already shopped multiple companies, they are presenting you with the best available price and coverage for that property.   Ask for a detailed walk thru of the quote and what specific things are covered and for what cost.  There may be items that don’t apply to your situation that could be removed to decrease the price.  Or at least you will have a better understanding of what is included and the costs involved.  It is a cost of doing business, so be sure to account for it in your analysis up front.  

A lot of folks take the risk.  I’m not that brave. And it may not be necessary depending on your specific situation.

Glad to hear you are speaking to your attorney and your insurance agent. You are on track. An umbrella policy and a good liability policy for the STR are good starts. More specific strategies will depend greatly on your specific situation, so your trusted advisors are best prepared to assist you.

Your previous homeowners insurance policy y is likely to deny coverage if they find out it is no longer owner occupied.  Be sure to let them know the occupancy has changed and get a landlord policy instead.  You can still cover contents if you are renting it furnished or as a short term rental.  You may also want an umbrella policy due to the increased liability exposures.  Talk to your agent about your situation and let the expert recommend specific coverages for you.  

Homeowners insurance may not cover you if the building is regularly vacant.  Be sure your agent knows exactly how often it is used and vacant to avoid any bad experiences with claims being denied for incorrect coverage.