ACQUIRE: Intro Property Insurance Basics & Strategy

Property Insurance is a vital, required component of creating PROFIT strategy with your rental property. There are many moving parts that you must understand in order to choose the best policy for your property. Insurance companies are in the business of making a profit as well, so it’s vital that you understand how the insurance game works - and how you can make it work for you!

When you identify a property to purchase, you’ll want to get a quote (See article on that process) but BEFORE you start getting quotes, let’s get a firm foundation about insurance itself!

Insurance companies know their numbers. They know statistically how many claims will occur; they just don’t know which houses will have claims but they know what risk factors will cause a loss. Therefore, they are careful to only insure properties that they don’t think are risky.

Insurance companies take your premium and pay other claims, betting that they will have more premiums than claims. The insurance companies are particularly concerned about the BIG FOUR concerns on a property: Roof, Electrical, Plumbing, & HVAC. These are the most common areas that produce a loss in a property. When you are looking to acquire a property, make note of the condition or current updates on these four areas.

Each state has it’s own type of insurance requirements and the terms vary widely across the country. Find your local department of insurance HERE listed by state.

When on your state website, look for consumer resources or news updates that relate to homeowners’ insurance or landlord/rental policies.

Each property insurance policy typically has two basic parts.

1) Coverage for the building or other structures.

2) Coverage for liability is someone sues for the owner’s negligence of some sort.

Know that BOTH parts are important and have their own EXCLUSIONS. Most insurance companies provide a declarations page, but this is NOT your policy that is legally binding. After you purchase a policy, you’ll receive the full policy which can be 100+ pages long. It’s important to read it and ask questions about the EXCLUSIONS and how the coverage works in real-life claims situations.

Each insurance policy will have a deductible, an amount that you pay per policy in the event of a covered loss, fire, windstorm, etc. Typically the deductible can range from $500 to $10,000 depending on the type of policy. The higher the deductible (the amount you will be financially responsible for), the lower your premium will be.

REMEMBER: you are partnering with your insurance company to protect your property from bad things happening. You choose how to structure your responsibility and which policy reflects your values and financial situation.