Understanding Your Insurance Is CriticalBy Paul Esajian on May 5, 2014
Every time you purchase a property, you are required to provide evidence of hazard, or homeowners insurance. Some investors treat this as a necessary evil, but if you ever had to utilize your insurance you know just how important it is. If you do not have the proper coverage or think you are covered in areas you are not, it can wipe away your savings and your portfolio right along with it. If you spend the time to research everything about a property, you would be wise to spend the same time looking into the best insurance to protect your investment.
Basic homeowners insurance provides you protection against damage for the loss of your property and liability coverage against anyone who is injured on your property. Fire and water damage are typically covered, as well as reimbursement for personal property that may be caused by accident. Where you can get in trouble is when your basic policy does not cover certain types of damage. Flood and even earthquake insurance are not covered in basic policies. If there is truly a flood situation in your home, you need specific flood insurance issued by FEMA. Lenders will not let you take ownership if you are in a flood zone without this flood insurance but it is possible in some areas to get flooded in periods of heavy rain or snow. If this is the case, you may not be covered.
You may think you are covered if your basement floods, but you need to check your policy. If rain causes the flooding, you are not covered.However, if a pipe breaks you may be covered. Even if you are covered for the carpet or flooring repair you will not be covered for any mold remediation or ancillary damage caused by the water. It is also important to note if your personal property is covered in the policy. A typical homeowner’s insurance policy for a rental property will provide minimal coverage for personal items. Renters are free to obtain their own renters insurance policy for their items, but most are not aware of this. As a landlord you should make this known when they sign the lease.
Insurance is something that you most likely never think about until you have to use it. If you are unsure of what coverage you need or even what coverage you have, you should reach out to your insurance agent. There are different policies for different situation at different costs. You may think you are wasting an extra $50 a month to get increased replacement coverage, but you will be glad you did in the event of an emergency. Conversely, your insurance agent may be able to shave some money off your annual premium if you were paying for items that were not applicable for your situation. The bottom line is that you should know what you are covered for and if you don’t think your coverage is adequate you can always make a change.
Your homeowners insurance is in place to protect you after something bad happens. Don’t compound this by not having the right coverage or even worse thinking something is covered when it is not. Stay up to date with your insurance because you never know when you will use it.