🤕 Insurance
Basics
💡 Landlord insurance is different from homeowner's insurance. Make sure you are properly covered; your lender will likely require it.
Consider getting liability insurance, which is cheaper and easier to set up than an LLC.
Get coverage at replacement cost, not cash (or actual) value. Replacement cost gives you the money replace the item pre-loss condition. Cash value means they’ll depreciate your equipment. For example, this means the insurance company is not giving you the money for a brand new heater, but they’ll pay you a fraction based on the age of your broken one.
Double check that your deductible is high enough; commercial buildings can be worth $10m, so a 5% deductible means you'll need to front $500k.
Finally, consider going through an insurance broker; if you’re bad with too many moving parts like me, they'll make sure you get the lowest rates each year and that you don't forget to cancel it.
Extra protection
Flood Insurance
If you are in a flood plane, then you will be required to have flood insurance.
But if you are in a flood plane AND have a grandfathered rate, it could quadruple your premiums once it gets flooded even once.
Homes in flood area sell for a bigger discount on average of 2.3%. That discount increases after flooding events to 5.5%, this includes nice coastal areas.
Liability Insurance
Landlords are strongly encouraged to obtain landlord insurance. This type of insurance covers legal costs and claims resulting from accidental damage, but does not provide protection against intentional damage, contractual liabilities, or criminal prosecution.
Commercial Business Insurance
D&O - Negligent acts, omissions or misleading statements committed by directors and officers of a company
Side A, provides coverage to individual directors and officers when not indemnified by the corporation as a result of state law or financial capability of a corporation
Side B, provides coverage for the corporation when it indemnifies the directors and officers (corporate reimbursement)
Side C, provides coverage to corporation itself for securities claims against it.
- E&O - Errors and omissions coverage protects people that give advice, make educated recommendations, design solutions or represent the needs of others
- EPLI - Covers employers from claims made by works who have sued the company for violating their legal rights as employees
Products/completed operations
Coverage pays for bodily injury
Excess liability
Insurance pays for covered losses exceeding dollar limit of general liability
Umbrella liability
Insurance is above limits of automobile liability and CGL policies
Occurrence
Policies covering claims arising from injury or damage occurring while policy is in force
Claims-made
Arise from injury or damage occurring during policy period and reported to insurer during policy period
Prior acts ("nose")
Claims arising from injury or damage occurring before policy period begins
Prior acts coverage
Retroactive date covering injury or damage occurring after the retroactive date
Run-off ("tail") coverage
Extended reporting period, pays for residual claims made after policy expiration
Shopping for CGL Coverage
Stay ahead of the game by taking proactive steps to ensure your claims history is up to date. Document all loss control and risk management measures that have been implemented, including any training that has been completed. Obtain quotes from multiple companies to ensure you have the best coverage available.
If an insurer declines your coverage, keep shopping for a better option. Review your limits of insurance and make any necessary adjustments. Be prepared for potential premium increases. Lastly, verify that your agent and insurer have the proper licenses.
To watch out for
For flippers, if a residence is vacant for more than 30-60 days and you anticipate remodeling, disclose this to the insurance carrier. Otherwise, they may use this information to deny your claim.