Whether you have one property that you are renting out or if you are trying to acquire a portfolio of properties to build up a steady income from real estate, you should be careful not to scrimp on the insurance policies you take out on them. Though it can be tempting to try and save money on items like insurance when you’re trying to get started in the business of real estate investing, don’t make the mistake of thinking that a basic homeowner’s policy is going to offer you full protection from property damage and other potential liabilities.
Building a Protection Plan
Start with the insurance agent that you already retain for your auto and/or homeowner’s insurance and make sure any policy you purchase for your rental property contains the following elements:
General and personal liability and property coverage
The property that you are renting out needs to be fully insured in order to protect your investment in the event of a loss. In addition, it’s important to have both a general liability and a personal liability insurance policy in place. A general liability insurance policy will provide you with protection for a range of damages, such as fire. Be sure that the limits set will offer you full protection. A personal liability policy, on the other hand, provides you with protection if you are held responsible for someone who is injured at the home. It also offers protection if someone else’s property is damaged.
When talking with an agent about insurance policies for a property you’re renting out, be sure to figure in for the actual replacement cost of the home. Because the cost of construction has risen dramatically over the past few years — with no end in sight to the skyrocketing costs — it’s important for you to insure the property for the cost of replacing it — not for the amount you paid for it.
Speak with your insurance agent about purchasing a comprehensive insurance plan that offers you an adequate amount of additional insurance suited for your unique situation.