Landlord Insurance Checklist Explanation – Liability

Gila Insurance Group has put together a landlord insurance checklist of things you should discuss with your Insurance agent. While it’s nice to have the list, the question is why are these so important? Here we will break this down, and explain piece by piece why you need to have these conversations.

Liability
Liability Insurance sufficient to cover your assets _____
Premise Liability _____
Personal Injury Coverage _____
Medical Payments _____
Umbrella _____
Loss Assessment _____

The liability questions can be tough questions to answer, but are some of the most important questions.

Liability Insurance sufficient to cover your assets – liability insurance covers you if you become legally liable to another person for property damage or bodily injury that you become responsible for usually through a lawsuit. Liability coverage provides coverage for those damages as well as for the cost to defend you. So the amount you purchase is important. A great place to state is to determine what assets you have and are trying to protect. We recommend you have at least enough liability coverage to equal your assets.

Premise Liability – This covers you for things that happen at the investment property. For example, slips and falls, dog bites, and all kinds of weird stuff for which you could be sued. Yes even if it’s your tenants fault, you could still become liable.

Personal Injury – this is excluded under premise liability and covers you in situations where your tenant is likely to sue you. For example invasion of privacy, false arrest, slander, libel and defamation. Every spoken bad about a tenant? There are a number of cases where landlords have been sued by their tenants for behavior of the landlord. Usually these situations are excluded under premise liability, and only covered if you have personal injury coverage.

Medical Payments – This is a no fault coverage that insurance company’s pay so that people won’t sue you. For example, if someone slips and falls and breaks and arm medical payments coverage pays up to the limit on the policy for the medical bills. The idea is if you take care of the person they won’t sue and it will be cheaper for the insurance company.

Umbrella – Are you sure you have enough liability insurance? I mean really sure? An umbrella policy provides additional liability coverage. In some cases it can include premise liability and personal injury. In other cases, just premise liability. We strongly recommend an umbrella policy if you have several investment properties partly because you have more assets to protect.

Loss Assessment – Is your investment in an HOA? If so your HOA has the ability to assess you for things they need to pay for. If that is related to a covered loss then your policy can cover you for those things. For example, does your HOA have a pool or play ground? If something happens there, they will sue the HOA, if something REALLY bad happens there they will max out their insurance policy and then come to you the homeowner (investment property or not), and you will be assessed. Your landlord insurance policy can cover these assessments as long as it’s due to a covered loss.

Perils Insurance

Perils insurance against, what in the world does that mean. Here’s an insurance guy trying to explain the insurance options for rental property insurance.

Rental Property Insurance Coverage – Section I policy Form – Perils insured against.

Demystifying the stuff coming out of your insurance agent’s mouth

Perils insured against…. What does that mean? Let’s see if I can take off my insurance man hat for a second and put on my investor hat. Why? Because I believe this is where A LOT of insurance folks tend to lose their clients. It’s a simple thing, but we often get too caught up in the insurance lingo when we are explaining this stuff. So, here is my best attempt.

A peril is stuff that happens to cause a loss. So, stuff that happens, for which you are insured, is a covered peril.

Okay. Sometimes you will hear an adjustor or an insurance agent say something like, “in the event of a covered loss.” Well, what in the world is a “covered loss?” How could you know? That’s where the policy form comes into play. Policy forms are like a series of hooks on a wall, so we take our policy and we hang it on a form, then every time we read something like “in the event of a covered loss,” we can look at our hook, and we see if it’s covered in the policy.

Okay, so there are essentially 3 types of “hooks” or options for rental property insurance buyers. There are basic, broad, and special forms. That’s easy, but of course you will often hear agents referring to these as DP-1, DP-2, or a DP-3. This basically says it’s a dwelling policy with this kind of form… Now, each form has a list of stuff that gets covered. Basic being the worst and special being the best. Now that I have gone all insurance guy on you, let me break it down visually so that you can understand it.

THIS IS A GENERALIZATION, CHECK YOUR POLICY! THERE ARE THINGS THAT CAN CHANGE THESE LISTS LIKE THE PROPERTY BEING VACANT OR OTHER FACTORS!

Now before you get all crazy and say, “hey Broad has most of what special has, I bet I can save some money,” slow your roll. Let’s look at that last one; Risk of Loss with Exclusions. What does that mean? It means that unless the insurer specifically excludes it, it’s covered. That is a HUGE difference.  In the first two options the insurer will only cover a handful of things, and if it’s not on the list, then it’s not covered. The last option, the special “hook,” says if it’s not excluded, its covered, which leaves hundreds of covered situations with a handful of exclusions.

LONG STORY SHORT? You’re special so get special. It’s as simple as that.

Start your quote online or call us for an immediate quote 1-877-784-6787.

Understanding Recoverable Depreciation

Chances are that you have never heard the words “Recoverable Depreciation,” unless you have had a homeowners insurance claim. If you have had a homeowners claim, and are staring at that word, you probably don’t know what it means, are also staring at a check, and might even be a little bit angry the check wasn’t as much as you had expected. Well, understanding recoverable depreciation is important because it is money that you can get back and can help you repair your house.

Real estate appreciates (goes up in value), right? Well… generally yes, but the individual parts of a house depreciate (go down in value). Let’s take a roof as an example. As a homeowner you know that if you own your house long enough that you will have to replace your roof. If you have composite shingles they will actually tell you what the expected life of the shingle is. For example, you might hear “this is a 20 year shingle.” That is the manufacturer telling you this shingle will be shot in 20 years. So, let’s say that at year 10 you have roof damage. You are 50% into the life of that shingle and therefore 50% into the life of the roof. The adjuster will come out, calculate out what the cost to replace that roof will be let’s say $10,000, then subtract the recoverable depreciation (let’s say $5,000), subtract the deductible (let’s say $1000), and cut you a check (in this case $4,000). WHAT!?

Let’s understand what happened here. Let’s start with the deductible, that’s easy it’s the part you are responsible for. The recoverable depreciation is the replacement cost of the home minus the depreciation. So the amount they cut the check for is, theoretically, the current value of the roof.

But wait, my policy covers me for replacement cost. Good. That makes that depreciation recoverable. See, insurance policies can be written at the Actual cash value, or at the Replacement Cost. Actual Cash value depreciates the parts, and pays you less. Replacement Cost pays to get you new stuff. At least that is the simple explanation. The problem is, once again, your crummy neighbor. You would never do this, but your neighbor is trying to make money off insurance which insurance is designed for it is supposed to put you back where you were not provided a windfall. See your neighbor doesn’t really want to replace his roof, he wants to pocket the money instead. So the company will pay him, and because of him, you, the actual cash value of the roof. Then,if you provide invoices or show that the roof is in the process of being replaced or has been replaced (each company is a little different), then you get that depreciation back. You are able to “recover”the depreciation. While it is a pain, it’s how the insurance companies make sure that your crummy neighbor does what he is supposed to do, which creates a hassle for all, but because the insurance companies know that you are an upstanding citizen that is going to replace your roof, they created recoverable depreciation. So in this case you would be able to get $9,000 for your roof. The replacement cost minus the deductible, which is what you should have expected in the first place.