How good is the insurance on your rental property? Unfortunately, many owners don’t find out until they go to use it. The best time to prepare for the unexpected and review your policy is before you need to make a claim.
Steve Cisney, a Real Property Management franchisee with locations in multiple states, shared three things property owners should know about rental property insurance.
1. Replace your policy with rental property insurance.
Chances are your existing homeowner’s policy no longer provides the needed coverage for your rental property. If your insurance company is not aware the property is a rental, it can sometimes deny coverage if a loss occurs.
Rental property insurance provides liability and structural coverage for the home and its occupants. However, it does not cover tenants’ personal property in the event damage occurs via fire, water, etc., so tenants should purchase renters insurance to cover personal belongings.
2. Ensure vacant properties are covered.
During the big freeze in January, one of Steve’s clients had a property which had recently become vacant. His property manager visited the home and discovered pipes had frozen and burst, causing significant damage. When the insurance adjuster inspected the property and discovered no one was living there, he denied coverage for the claim due to a clause in the policy that required the home to be occupied to qualify for coverage.
Broader, more landlord-friendly coverage that protects vacant properties is generally available for no additional cost. As an owner, you simply need to find an insurance company that provides the coverage which best meets your needs.
3. Choose replacement cost vs. actual cash value.
Another one of Steve’s clients who experienced significant loss due to frozen pipes had a policy that dictated the damage would only be repaired based on the “actual cash value.” This meant the insurance company could depreciate the value of the damaged items; for example, seven- year-old carpet had a zero dollar value.
The insurance company ultimately paid only $22,000 for his client’s $40,000 loss, leaving the owner responsible for the difference–all because they had chosen to “save” a few dollars by choosing a policy that paid out on actual cash value vs. replacement cost.
When reviewing insurance costs, consider replacement cost coverage—Actual cash value may have save you a few bucks up front, but is it worth it?
While these home owners learned the hard way, now is the time to review your policy and learn from their experiences.
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