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Understanding Rental Property Insurance


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Title: Understanding Rental Property Insurance

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Understanding Rental Property Insurance The
proper rental property insurance coverage can
protect you from losses caused by many dangers,
including fire, storms, burglary, and vandalism.
A comprehensive policy also includes liability
insurance, covering injuries or losses suffered
by others as the result of defective or dangerous
conditions on the property. Liability insurance
also covers the legal costs of defending personal
injury lawsuits - a valuable feature because the
legal defense costs of these cases are commonly
much greater than the ultimate award of damages,
if any.
Common coverage's The following list describes
the three levels of coverage available for
primary policies, all of which include liability
coverage. Many property insurance companies offer
competitive insurance packages especially
designed to meet the needs of rental property
owners, so remember to shop around.
Basic coverage Most companies offer a basic
coverage package that insures your investment
rental property against loss from fire,
lightning, explosion, windstorm or hail, smoke,
aircraft or vehicles, riot or civil commotion,
vandalism, sprinkler leakage, and even volcanic
This coverage often doesn't include certain
contents, such as boilers, equipment, and
machinery unless specifically added as an
endorsement. Based on the type of property you
have, you may need to consult with your insurance
agent about additional coverage that may be
But just because you own a small retail strip
center with a couple of plate glass windows
doesn't mean you need to have the special
coverage that's offered. Insurance companies
often have minimum policy premiums, so certain
insurable items and acts aren't worth insuring
because the potential for a claim is minimal and
the costs are high.
Broad-form coverage You get the basic package,
plus protection against losses of glass breakage,
falling objects, weight of snow or ice, water
damage associated with plumbing problems, and
collapse from certain specific causes. Special
form This coverage is the broadest available and
covers your property against all losses, except
those specifically excluded from the policy. It
offers the highest level of protection but is
typically more expensive.
An insurance company can pay owners for losses in
two ways Actual cash value The coverage pays
the cost of replacing property less physical
depreciation. The standard policies most
insurance companies offer provide for actual cash
value coverage only. Replacement cost This
coverage pays the cost of replacing the property
without subtracting for physical depreciation.
You must specifically have an endorsement and pay
extra for replacement cost coverage. However, we
do encourage you to purchase it.
As with homeowners' insurance policies, the
location, age, type, and quality of construction
of your property are significant factors in
determining your insurance premiums. Be sure to
get an insurance estimate before you buy your
property to avoid unpleasant surprises (older
properties with wood shake shingles located away
from fire protection may not even be insurable,
for example) and realize the benefits of lower
risk properties. For example, newer commercial
buildings, and even some residential proper-
ties, were constructed with fire sprinklers and
alarms that reduce your insurance premiums - so
do as monitored intrusion alarms).
Some insurance companies have a coinsurance
clause that requires rental property owners to
carry a minimum amount of coverage. If you carry
less than the minimum amount of coverage, the
insurance company imposes a coinsurance penalty
that reduces the payment on the loss by the same
percentage of the insurance shortfall. For
example, if you carry only 1 million in coverage
when you should have 2 million, you're only
carrying 50 percent of the minimum required
insured value. If the building suffers a loss,
the insurance company pays only 50 percent of the
Many rental property owners first become
investors by renting out their former personal
residences when they buy new homes. They may not
realize they should immediately contact their
insurance agent and have their home- owners
policy converted to a landlord's policy, which
contains special cover- age riders that aren't in
the typical homeowner's policy. Because of the
increased liability risk for rental properties,
some insurance companies may not even offer this
coverage, whereas others specialize in this
business. Either way, obtains proper landlord's
coverage for your rental property, or you may
face the possibility of having your claim denied.
If you own multiple investment or rental
properties, consider A single insurance policy
that covers all locations Rather than have
separate policies for each rental property, you
can get better coverage with a single policy. For
example, if you currently have three properties
each with a 1 million policy, you could get a
single policy with a 3 mil- lion limit at a more
competitive cost. An aggregate deductible An
aggregate deductible is the portion of your loss
that you essentially self-insure, because the
losses at any of your three properties can go
toward meeting the aggregate deductible.
Excess liability (umbrella) coverage Excess
liability (umbrella) coverage can be a
cost-effective way to dramatically increase your
liability protection and is designed to
supplement your main or basic policies. An
umbrella policy provides both additional and
broader coverage beyond the limits of the basic
commercial general liability insurance and other
liability coverage and this coverage is only
available after the primary policy limits have
been exhausted.
Your primary policy may have liability limits of
500,000 or 1 million, but an umbrella policy
can provide an additional 1 million in vital
coverage at a cost of 2,000 to 4,000 per year.
Depending on the value of your property and the
value of the assets you're seeking to protect,
buying an umbrella liability policy with higher
limits may make sense. Umbrella policies are
avail- able in increments of 1 million with even
lower rates per dollar of coverage as the limits
go higher. The most common umbrella coverage
amount for the owners of large investment
properties now is 5 million at an annual cost of
approximately 7,500 to 12,000.
Purchase your property insurance policy from the
same company that handles your underlying primary
liability insurance package. The reason If you
have two different insurers rather than just one,
the companies may have different agendas if legal
problems arise. Source http//planet.infowars.com
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