Introduction
Did you know that with the current market conditions, many insurance companies are now writing policies at ACV (Actual Cash Value)?
Some are even excluding the roof completely. It’s important to understand what type of policy you are purchasing, the coverage limits, and how you will be covered in the event of a claim. My agency specializes in finding the best policy for your situation and the most competitive rate.
Here are some items to pay attention to.
Replacement Cost Vs Actual Cash Value
Replacement cost covers the cost to replace/repair any damage to the structure of the property, the roof, and all contents inside at what they are valued at in the present day. Replacement cost should always be chosen over ACV not just because it offers more beneficial coverage, but also because the price difference to add it to your policy is very minimal.
Actual Cash Value will cover you in the event of a claim, but the property, roof, and contents will be evaluated based on how old they are at the time of the loss. The insurance carrier will calculate the depreciated value to determine the payout they will provide to you. For instance, if the roof is 25 years old and a hailstorm completely damages it, ACV will provide coverage. However, it will take into account the age of the roof and will be used against your coverage payout. In other words, you will not receive enough coverage to cover the cost of a brand new roof.
Personal Liability, Loss of Use, and Optional Policy Endorsements
Personal Liability
Coverage is automatically included on any landlord policy, vacant property policy, or commercial property policy. Usually, insurance policies will default the amount of coverage to the lowest possible allowed in order to write the policy. For smaller landlords and/or vacant properties this could be approximately $100,000 and for a larger commercial property policy this could be approximately $1,000,000 – $2,000,000. Every insurance agent should advise on the highest limits available for personal liability coverage and how that may affect the insured’s premiums. Generally speaking, the increased limit can provide exponentially higher protections for the landlord at a minimal cost.
Owning a property comes with many benefits, but it also comes with risk. Whether it’s a tenant, or anybody else, that injures themselves on the premises, make sure your policy has high personal liability coverage. Landlord policies and/or vacant property policies can provide personal liability coverage as high as $500,000 – $1,000,000 (depends on the carrier guidelines) and on a commercial property policy coverage typically ranges between $2,000,000 – $4,000,000.
Loss of Use
Loss of use coverage provides missed rent reimbursement to the landlord in the event that the tenant is displaced from their unit, due to a claim. Landlords should ensure this coverage is on the policy so that rental payments are received while a claims process is pending.
Optional Endorsements
Optional endorsements are not automatically included within the policy limits. However, they can be added to the policy for additional insurance coverage. Two common additional endorsements for real estate investors are:
Water Back Up: This endorsements covers the damage done to the property (drywall, tile, trim, etc.) in the event that the sump pump overflows or fails AND in the event that there is any sewage/drainage back-up directly into the property. $25,000 in coverage can cost approximately $250/yr in additional premiums.
Buried Utility Lines: This endorsement provides $10,000-$20,000 in coverage and covers all underground utility lines if they were to rupture, burst, or break from a tree root. Cost is approximately $100/yr in additional premiums.
Policy Deductible
With the frequency of natural disasters that many states have been experiencing, and with inflation at all-time highs, most insurance carriers are requiring a minimum deductible of $2,500. Some carriers are opting to a % based deductible system, foregoing the common $1,000, $2,500, $5,000 deductible options. A common deductible under this system is a min 1% required deductible of the policy coverage amount. For instance, a policy with $500,000 of dwelling coverage will require a $5,000 deductible. This newly introduced deductible system typically doesn’t affect real estate investors as most investors carry policies with healthy deductibles. The average investor typically doesn’t make minor claims and the higher deductibles allow for a lower insurance premiums. Investors generally carry insurance for catastrophic or high cost events.
Investors also typically carry insurance policies for multiple properties. Filing too many claims, usually 2-3, in a three-year span will hurt their eligibility for future coverage with most insurance carriers. Investors should only file a claim once they have spoken with their insurance agent, and the damage/liability appears significant enough to proceed.
About
Chris Scavo is an agent with Goosehead Insurance located in Plano, IL. Chris joined Goosehead because of his unwavering commitment to take care of his clients. Using cutting edge technology to shop with dozens of “A” rated insurance companies, he is able to find the right coverage at a competitive price. He takes the time to review all insurance options and customizes a policy based on the unique risks and desires of each client. Upon finalizing coverage, Chris is backed by a service team that has the highest client loyalty rating in the industry. Request a quote from Chris and you will quickly understand why Goosehead is one of the fastest growing distributors of home insurance in the United States. Click here to request a quote.
Chris Scavo
Goosehead Insurance
847.975.3977
Insurance broker with over 25 carrier options
Licensed in ILLINOIS and INDIANA
