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1. Understand the limitations of personal lines.
“With tenant-occupied leases, the property often needs to be recorded on personal DP-3 lines, which usually involves a $ 300,000 liability limit,” he said. “And for customers who want a higher limit of liability, you can also opt for a personal umbrella. It’s simple and can work great in some situations. But there are many reasons why this approach might fail.
“What happens when a property is left empty between tenants? Or if the house is being redecorated before being rented out to a tenant? Many forms of housing are not suitable for vacant or renovated homes.
“How do you manage their portfolio as they buy and sell more and more properties? Most personal line insurers limit the amount of rental property they are allowed to carry with them. In addition, if the investment property is owned by an LLC, trust, or other legal entity other than the one listed on your homeowners’ insurance and umbrella policies, insurance may not be available for incidents that occur on the property. Property owned by a legal entity may not be insured at all in accordance with the housing policy. So if your client has more than four or five properties and the property names are not in their personal name, it just won’t work. “
“Perhaps more serious problems in terms of coverage arise from liability risks.”
2. Pay attention to the risks associated with harmful liability.
“Liability limits on personal lines usually have defense costs within the coverage limits,” he noted. “With a cap of $ 300,000 to $ 500,000, defense costs can severely limit the amount that can be applied to a payment.
“Many personal line policies contain a ‘complete elimination of pollution’. This means your client is exposed if they have a tenant who falls ill or, worse, passed away from what has been defined as carbon monoxide poisoning. Since the umbrella policy follows the exclusion of basic liability, this exclusion means that it remains for them to defend themselves in a wrongful death lawsuit.
“Some umbrella policies for personal lines also contain a ‘Total Business Venture’ exemption, which may exclude losses or legal action against rental property because it generates or is intended to generate income.
“Also remember to exclude canine liability or breed restrictions. Many personal line policies list the 12-14 most dangerous breeds that are excluded from coverage. Although some investors do not allow dogs as part of their lease, this can lead to surprises in the premises. “
3. Use a commercial form
“I would recommend that investment property be treated like the business it is and insure it in the form of a commercial policy,” he suggested. “Not only is the commercial property form written in such a way as to properly protect the landlord with cover such as loss of rent, but the general commercial liability policy also usually addresses the exclusion risks listed above. And with dedicated property limits starting at $ 1 million per case (with defense spending outside that limit), an umbrella policy can often be unnecessary.
“Writing the cover in a commercial form also helps to isolate the investor’s personal assets and business assets from each other. Imagine an investor is sued for the death of one of the tenants. A lawsuit can easily exceed the $ 300,000 limit typical of personal politics. If an umbrella liability policy insures everything that the investor owns in both personal and investment business, an injured third party can take over the investor’s personal assets. On the other hand, an investor causes a car accident in which another driver is killed. A driver’s family lawsuit in a wrongful death case may follow investment property if these assets are grouped together. ”
4. Take stock of market and service problems.
“After several years of frequent and catastrophic losses, it is becoming increasingly difficult to find carriers prone to the risk associated with investment property insurance,” he said. “Carriers are limiting capacity, especially in areas prone to these hurricanes and wildfires, and are worried about the additional risk associated with busy tenants, vacant or refurbished properties. All this has led to uncertainty about who else is playing in this area and to difficulties in finding competitive rates to win an account.
“Real estate investors can also pose unique challenges for agents beyond finding the right coverage and operator. Frequent changes to a property’s location can mean canceling and rewriting coverage every few months when renovations are completed and the site is vacant, then when the vacant property gets a new tenant or is sold. When an investor buys a new property, you have to start the application process from scratch each time. Canceling policies, refunds, collecting appropriate coverage for multiple carriers, and managing multiple annual renewal dates as the portfolio grows is a headache. ”
5. Identify solutions to these problems.
“The answer to these challenges for agents and, in turn, their real estate investor clients is REInsurePro program, he said. “REInsurePro’s real estate investment program is backed by a whole arsenal of A-rated carriers ready for the unique risks associated with these properties, even in disaster prone areas. Through a partnership with national surplus and surplus carriers, REInsurePro was able to create a flexible program at competitive prices for any type of investment property.
“The monthly reporting form is structured for frequently changing investor portfolios, with the ability to smoothly change coverage between employment status every month without having to cancel and rewrite policies. Realizing that real estate investors can leverage their relationship with the industry and generally do not pay retail rates for repairs and materials, REInsurePro allows investors to bear replacement costs at a much lower price per square foot than many insurance companies (70 US dollars), and has no additional obligations. – an insurance penalty of or more than $ 50 per square foot.
“What’s more, REInsurePro gives agents direct access to offer and link coverage through our market-leading technology platform, customizing coverage to meet lending requirements for floods, land movements, equipment breakdowns, ordinances or laws, and more. Then serving your client as their portfolio changes each month, with all of their properties under a single reporting and billing schedule. You avoid the hassle of keeping track of different renewal dates because coverage remains in effect until canceled. ”