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What Kind of Insurance Do I Need on My Rental Property?

– Hi, I’m Mark Cunningham
with Grace Management. Unfortunately this week we had
to make a very difficult call to an owner. We had to make that rare call where we told an owner that his property had actually caught on fire this week, through no fault of anybody’s and the city has actually
condemned the property at this point in time. Now that’s a rare thing,
very rarely happens, but that brings up the
idea of proper insurance on your property. If you own rental
property, it is imperative that you have proper insurance
in place on your property. Now, there’s two types of insurance you need to make sure you have. Number one is simply a landlord’s policy. That’s as simple as picking up the phone, calling your insurance company, telling them you have a rental property and you wanna place a landlord’s
policy on your property. By the way, if you own
a property you live at, your principle residence,
and you’re converting that to rental property, it’s very important that you tell your
property insurance company that you’re converting the property from a principle residence
to a rental property, and they will convert your policy to a homeowners policy,
to a landlord’s policy. Very important they do that to make sure that you have
proper coverage in place. Now under a landlord’s policy, that’s gonna cover you for typical things that you may incur as a landlord. It’s gonna give you some
liability protection, it’s gonna cover the
property and the missing rent if something happens to the property. So let’s say the worst case happens and let’s say your property
does catch on fire, and it does burn and it’s
gonna take six months for the insurance company
to rebuild that property. Well while it’s sitting
vacant, who’s paying the rent? There’s nobody living in your property. Most policies that are landlord’s policy have a built-in part of the policy that will pay your rent, your missing rent during that time that
the property’s vacant. So there’s a loss of rent coverage. What you oughta make sure you
ask your insurance company is how long is that duration
of rent coverage for, number one, and number two,
if my property is vacant for an extended period of
time, will that coverage of lost rents terminate. Here’s why that’s important. A number of years ago, the rental market was
very, very poor in Denver. We had a property that sat
vacant for about three months. The owner took about a month to fix it up, it’d been advertised for about a month, so we’re approaching month
three of the vacant property. Well during that period of time, towards the end of month
three it was vandalized and what that owner
found out unfortunately, is that his insurance did not even cover what happened because his insurance lapsed because insurance will stop
if your property’s just vacant for too long. So find out from your insurance company if there’s any lapse in coverage if the property’s just vacant for an extended period of time. Most policies we’ve seen have anywhere from a 60- to 90-day policy
term during that time. So if your property’s
more than 90 days vacant, you may be in danger of
having your policy lapse. But a landlord’s policy will cover you for the general things
that you could incur on your property. The second type of policy we recommend is an umbrella policy. This would cover those
worst case scenarios in the unfortunate event
if a claim happened and the amount of that claim was greater than your landlord’s policy. Who pays that? What’s gonna happen? If that worst case scenario happens, a tenant slips and falls
and really hurts themselves and sues you and it exceeds
your landlord’s policy, an umbrella policy will
kick in and cover you. I have some rental properties,
I have a $2 million umbrella policy for me. That’s what we recommend. At a minimum, bare minimum, you want a $500,000 umbrella policy. To go to a full million
is that much money more, and to go to two million, again, is not that big of a
step up in a cost to you as an investor. So go for the $2 million,
it doesn’t cost you but a couple hundred bucks a year to have $2 million of
additional insurance. It’s rare for claims to
happen on properties. These are only the worst scenarios, but in the unlikely unfortunate event, if that worst case scenario happens, it’s so good to know you’ve got an insurance policy in place. If you’ve got questions, let us know, but most insurance companies
cover landlord’s policies, most insurance companies
cover umbrella policies. Make sure you’re working with one of those with your property. Thank you.

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