I have heard it said that insurance isn’t worth the paper it’s written on when a claim happens. As an insurance man, that pains me, because regardless of the product, most problems with claims are related to misunderstandings and misplaced expectations. One of the biggest issues investors run into is assuming something is covered when it’s not. Like any insurance policy, landlord insurance policies have specific coverage for landlords, and Insurance policies have exclusions. Understanding the exclusions on your policy can go a long way in making sure you have the right coverage.
For example, you will be hard-pressed to find a company that will cover your lack of knowledge. Wrongful eviction isn’t covered, so you need to be a smart investor and learn how to do things legally or use a property management company. Flood is not covered under a standard policy, so you will need a separate policy if there is potential for flooding. Damage done to the house by your tenant will not be covered. Make sure you get good tenants by doing background checks. Earthquake or earth movement may or may not be covered depending on your area.
The bottom line is understanding your asset, the risks of the area in which you have invested, what needs to be covered, and what the exclusions are. In some cases a separate policy may be issued, in other cases, it won’t be. The key to insurance is understanding your risks and deciding whether or not you need the coverage for those risks. The key to making sure your insurance is worth something is understanding the risks, choosing how to manage those risks, and making sure that if you insure something, you understand what’s covered. At least then you can have an expectation when a claim occurs.
We recommend that investors use checklists as a part of their purchasing process, that will create about specific questions about exclusions and endorsements (or coverages additions), that can be added to the policy. Internally we use the Rental Property Insurance Checklist.