As property managers, we routinely hear complaints about the high cost of hazard insurance for investment properties. Some investors choose to limit their coverage, while others choose not to have hazard insurance at all when their houses are paid in full. We always advise carrying appropriate coverage and here’s why.
Let’s say your property is paid for. You have no hazard insurance and your house is hit by a tornado or suffers fire damage. That’s a catastrophic loss to absorb, not to mention the potential for lawsuits. What’s more likely, is the loss of your roof through hail damage. Are you ready to cough up thousands of dollars for the new roof?
Another example is you have a property and have reduced your coverage to save on premiums. Then your hot water heater busts and hot water and steam come pouring into the house destroying your beautiful natural wood flooring. Unfortunately, your “reduced” coverage doesn’t include replacement costs. Now you’re out multiple thousands of dollars.
Do you see where I’m going with this?
Insurance is often overlooked by investors/landlords, but vitally important. You could find yourself financially devastated, your real estate investing career in jeopardy, or worse yet, your life savings wiped out and a large judgment against you.
You can hedge yourself against large losses that could wreak financial havoc by working with an insurance professional to advise you on your particular investments. A property in a coastal area has different insurance requirements than one surrounded by farm land. Under-insuring an investment property, over-insuring an investment property or having the wrong types of insurance on the investment property can all produce disastrous results.
It’s important to find a proper balance between being insurance rich and cash poor. If you find yourself in a financial hardship due to insurance costs, it may be time to rethink your investment.
So speak to your insurance professional – it’s an important step in protecting your investments.