Insuring your rental house is not an option given that your rental property could suffer loss due to fire or some other insurable loss. Your lender will require it.
MINIMIZE MARKET LOSSES BY BUYING WISELY
We are not talking about loss of value caused by a market decline, but literally loss or damage to the property. Buying wisely can defend against devaluation and ensure positive cash flow with attractive property and predictable demand.
Because the majority of investors buy insurance to cover their rental properties or the time they own a fix and flip, this service is a separately identifiable expense that is separate revenue attached to the single-family rental industry.
GENERAL OR INVESTOR SPECIFIC INSURANCE?
In many cases an investor and an insurance agent will make is a simple extension of typical personal or dwelling insurance. Initially this may be convenient but may not be adequate in the event of a claim while a property is under renovation or unoccupied between tenants. Not selecting the right type of insurance may be the excuse the insurance company needs to deny the claim.
Investment specific insurance is available for covering fix and flip investments and rental properties. This category of expenditure is not an optional expense
INVESTMENT PROPERTY INSURANCE
This sort of insurance covers your rental properties, or those undergoing a flip from major loss such as liability, vandalism, fire, hail, windstorm, and malicious mischief. These policies inconvenience the investor as little as possible, but also insure the insurance company is not at a disadvantage. Ideally these policies
- Covers investment properties in any state, vacant, occupied, REO/OREO, or rental, as well as properties under renovation.
- Any property state change is reported and adjusted as addition. Does not require new policy.
- Need no pictures or appraisal required on policy inception.
- No structure age limits so the home can be of any age.
- There is no construction requirements such as square footage, number of rooms, or specific materials.
- There is no coinsurance penalty.
- If investor buys new property it is automatically covered although must report purchase within 60 days, and pay any premium increase.
- Coverage includes damage caused by vandalism and malicious mischief.
- There is a physical inspection required for vacant properties at least once a month.
- Premiums can be billed and paid monthly, quarterly, semi-annually or annually
- The premiums can be prorated for the exact days the property is on the policy allowing for actual coverage for a fast fix and flip. Standard policies do not for proration for less than for a pre-agreed premium duration.
- The named insured can be an individual, LLC, C Corp, S Corp, Trust or Estate.
- The investor receives a physical policy identifying the insured and the nature and maximum value of the coverage.
- Policy coverage can be adjusted with monthly reporting form.
- Investors have a choice of deductible options
- Typically up to $2.5 million physical hazard coverage per property
- Typical premises liability $1 million occurrence/$2 million aggregate
- Rental coverage and loss of rents coverage is an optional for an extra premium.
These features are typical of investor insurance and are considered mandatory for any investment property and investment business.
COST OF INVESTOR SPECIFIC INSURANCE
The simple way to define individual costs and then total economic contribution is to look at the cost of covering the property value rather than the specific property. This uses a premium rate rather than a premium for a specific property.
Premiums in this insurance category are calculated by the cost of insuring the property capital value, defined by a rate per $1,000 dollars covered. Rules of thumb range from $.35 cents/$1,000 per year, up to $.50 cents/$1,000 per year. Investors typically do not insure at market comp or retail value. We will take a 30% discount and any self-insurance risk taken by investors. This means on the current value of a single-family investment premium purchases.
Estimated Premium Range:
$244,000 (July 2016 median existing homes sale price) less 30% = $170,800 (adjusted value) X $.35/$1000 = $60.00 a month or $720 per annum.
$244,000 less 30% = $170,800 (adjusted value) X $.50/$1000 = $86.00 a month or $1,032.00 per annum.
ANNUAL INSURANCE PREMIUM CONTRIBUTION
Taking the lesser of these two calculations and applying this to a population of 23,700,000 occupied rentals (U. S. Census Bureau and National Multi-Housing Council data,) plus 10% for vacancies (26.070 million properties,) it is estimated that insurance premiums generate around $18.770 billion in premium revenues to insurance companies that cover investment properties. There is a large portion of these insured by generic homeowner policies that do not necessarily cover risks and values associated with investments and rentals. Here lies an opportunity for both investors and investor-friendly insurers. Go here……