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Insurance for Rental Property - Are You Financially Prepared for a Catastrophic Event?

By Edited Mar 31, 2014 0 1

Investing in real estate can be rewarding and a good way to create a return for your money long term as long as you follow a few simple rules such as having good homeowners insurance for a rental property, good maintenance procedures and obviously good tenants!

On paper this all sounds great, but what happens when an “unforeseen event” takes place?  Will you be ready? 

Many real estate investors will obviously want to keep bills down while renting a house and may do some maintenance themselves or have a schedule.  I personally made sure to go into the rental home every 6 months to fill the water softener with salt (I rented the softener in my name for this reason), change the backup batteries in the smoke detectors and have my daughter electrician check the panel.

homeowners insurance for rental property

Have a Good Team of Professionals You Can Rely On

This is a good way to make sure things are going alright.  The tenants knew this procedure when they signed the lease, and I would get them to sign this checklist form so that I could never be accused of not having batteries in the smoke detectors.  It is also good to have great people as part of your “background team” as I call them. 

Good lawyer who can answer any tenant/landlord questions and not charge you an arm and a leg for the answer.

Trades people if you think there is a problem coming up that will need attending to if you feel you can’t do it yourself, such as gas furnace, plumbing etc.

Good insurance agent that you can trust will give you all the right coverage and advice.

But at the end of the day, the responsibility of this house is still your own.  Your name is on it and it is your house and you are simply renting the space out.

Nothing tests your team more than a “catastrophic event” You know those things that you don’t plan for but every once in a while they do happen!

Rental house insurance

I Thank God Everyday That No One Was Home

I have a rental house.  Have owned it for 3.5 years now and my family gutted most of it and put it back together with new equipment such as the furnace, kitchen, bathroom and more.  This was with the hopes that if everything was replaced with a large investment upfront that there would not be the middle of the night calls and we would see a return on our investment and could charge higher rent as the place was perfect! 

But nothing prepares you for the call you get from a Fire Chief!

For whatever reason, which even the fire department claimed was an “undetermined cause” the metal shed about 10 feet from the house burst into flames on a bright sunny summer’s day.  There was nothing stored in there with any fuel.  This was a family living here and they stored bicycles in there.  No one was home so this fire burned so hot it jumped the 10 feet to the side of the house and got up behind the siding and burned wall timber and started on the floor joists by the time it was put out.  Fire department was there in 3 minutes otherwise it would have been lost.

Thankfully the tenants were at a wedding.  It was the baby's room that ended up destroyed as you can see in the picture and the room filled with black acrid smoke.

If You are an Investor Check Your Rental Property Insurance Today

This is when you now rely on one of your team players, the insurance agent.  Everything was taken care of except my tenants didn’t have renter insurance and had to basically find somewhere else to camp and they stored all their saveable stuff in the basement.

But I quickly learned one very big valuable lesson.  Don’t take what your agent says at face value and don’t assume anything.  Once tenants had originally moved into this rental home my deductible was to move from 5000 dollars down to 1000 dollars (5000 dollars is for an empty house) I phoned in the date the original tenants moved in and my agent said “thanks I will take care of the deductible now” I got busy finding a tenant and never thought about it again.

I never checked and even when my policy would come in the mail they had combined my own home insurance with the rental for a better price.  Had I looked closer at the page I would have seen that the deductible in fact had NOT been lowered.

rental house insurance(128457)

My agent had since retired and her replacement looked into the file and saw that I had requested it but since it had not happened and now there was a claim, I had to pay the 5000 deductible. OUcH!!  Plus, now I can’t change it for 3 years NICE!

The fire causes 90,000 dollars damage.  The back corner and side of the house had to be supported and rebuilt.  Of course there are things they come across that you will want done that is not part of the fire and that will cost you extra.  So, this investment cost me big bucks this year but the good news is it looks better than ever.

Trust Your Team - But Don't Assume - Especially with Rental House Insurance

The reason for this article, is to trust your team, but don’t assume they are handling everything.  I should have realized that the deductible had not changed as my premium did not change but I quickly looked at my policy and saw the 1000 dollar deductible for my own home and didn’t look close enough at the rental deductible.

Also make sure you have enough coverage.  It will never be for the value of the property because you will always be left owning the building lot, but make sure it is close enough that if they simply paid you out that you will get more than the bank!

Homeowners insurance for rental property is one of the cheapest premiums you will pay next to property taxes and renovations, but it is really important that you go over your policy with your agent every 6 months and look at that fine print.

Also make sure your tenants have renters insurance which would have put my tenants in a hotel for the 5 months it took to do this rebuild as a structural engineer and the town were involved.  They did not, so now I am trying to get them to move their furniture and things out of the basement and I know they are tired of doing it, but your insurance will not do it, so the responsibility of removing any burnt things is your own as the landlord and building owner not the tenants, so this could add more costs.

Rental house insurance only covers the building and anything the landlord owns.  In my case that was the building, 5 appliances, and 2 sheds.  I did get paid for the shed that burnt but the tenants lost brand new bicycles.

It was in the lease and he just didn’t renew his renters insurance when it came up.  There is no insurance police that are going to report this to you, so you need to have money set aside for your rental investment at least equivalent to your insurance deductible and any extra expenses that will also come up!  Luckily I had some there that was to go towards repaving the driveway.  Not going to happen for a while now!

Be prepared, check in with your professionals, and check on your tenants at least every 6 months.  You can’t be ready for everything, but this one oversight cost me 4000 dollars up front.

Also read when good tenants go bad if you are already a property investor.  There are some good tips.



Apr 9, 2013 3:37pm
wonderful information and very eye opening. sorry about the insurance agents error, but with what insurance companies are paying out due to natural disasters they are going to fight to keep their money whenever they can.
good luck with your future endeavors.
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