Newbie Question. Please help.
i will have a house with Tax value at 130k. which will be rental.
What coverage should i buy? and how much?
Dwelling coverage.
Do i need personal liability coverage? if so, how much?
and Medical coverage?
Sincerely
Sean.
Why don’t you ask an insurance agent that specialized in P&C? Find our who your local investors use for their insurance and go to that agent. They’re the experts in coverage and will recommend how much/what types of coverage to purchase.
You have to have a policy that is written for a rental.
Yes, you want liability insurance and tons of it. You are going to be financially responsible for stupid mistakes that your tenants make; get lots of coverage.
Most policies automatically come with a bit of medical insurance. It doesn’t seem to me that the medical is ever very big: $2k-$5k sort of range. I assume the insurance company knows how much they need to buy off a lawsuit and how much damage is going to end up in court, no matter if expenses are paid.
If you don’t yet have insurance, I suggest that you make appointments and speak to 3-4 different agents. See what they offer and how much coverage they suggest.
Be aware, that the cheapest policy isn’t always the best bargain. Pay attention to coverage and also to whether or not the company is known to pay claims or not.
You have two basic choices to begin with - Actual Cash Value or Replacement Cost. The ACV policy is generally going to be much cheaper because you can set the coverage for the amount you need. The Replacement Cost policy will cover the cost to replace your structure in today’s dollars.
Consider it like this:
Say your house is worth 130k. You can insure it for 130k under the ACV policy. Maybe the replacement cost for your house is actually 200k. Under the Replacement Cost policy, you will have to insure your house for 200k and it will cost more.
Make sure you ask different agents what the liability coverage amount is for the policy they’re quoting you. You want as much liability coverage as you can. If you’re being quoted 300k liability, check to see how much extra it is per year to bump it to 500k or 1MM if it’s available. The premium increase is probably very small compared to the extra coverage you’ll have.
Make sure your tenants understand you only provide insurance on the structure. We have a clause in our lease that states our coverage is only for the structure and that tenants have to purchase their own renter’s insurance if they want to protect their personal belongings.
Sean,
Your agent will probably need to come up with their own figure. They will calculate the replacement cost of the property. The replacement cost is generally higher than the property value. When it comes to replacement, the assessed value is irrelevant. The cost to rebuild the property TODAY is the key.
Carry as much liability as the policy will allow. As Justin stated, the cost is small compared to the value of the coverage.
You should make sure that you have coverage for “loss of rents”. Most ‘landlord’ policies will include this coverage. If there is a covered loss, the policy will essentially replace the rental income that won’t be coming in during repairs.
Talk to a local agent. Get someone who is seasoned, but not an old coot. You might want to find a local REI club and see if there is an agent who is a member. In cases like that, they probably know the markets the best.
Good luck.
boblaw