let’s talk : INSURANCE for RENTALS
Sharing a lesson I learned recently on INSURANCE in regards to one of our rentals. Let’s jump right in.
So, as we do, let’s talk Real Estate, let’s talk INSURANCE (for rentals)…
WHY ARE WE TALKING ABOUT THIS?
Over the past couple of months we have put a lot of work into one of the properties up in Binghamton; a new roof, new outlets, electrical wiring correction, patching up some older holes, new doors, cleaning out furnaces, replacing windows, even putting up new address numbers (Post Office asked us to)– the list goes on – there was a whole host of things we updated! BUT, out of all of those fixes, our most expensive fix was the roof. Now when we were purchasing the house the inspector told us that our roof should have a few years before we needed to replace it, yet, one week into owning it, there we were being forced to replace it due to a gaping hole in the roof that was allowing rain water to drip into one of the tenants units. In my mind, this was a clear insurance claim, we had the roof inspected prior to purchasing the home and there was no hole and now all of a sudden there was a huge hole that went all the way through to the interior of the home- I immediately assumed storm damage?! How else would a gaping hole just appear? So we reached out to the insurance company to file a claim. Word to the wise – they DO NOT like it when you immediately file a claim on a new property. The insurance company sent out an adjuster (without any notice) and walked through the entire home. They decided the gaping hole on the roof was not due to storm damage rather it was just an old roof… They also found a whole other list of issues they did not like with the property and therefore decided to drop us. Mini rant – while they were checking on the roof, they had MET THE CONTRACTOR WHO WAS FIXING THE ISSUES BEHIND THE REASON THEY WERE DROPPING US SO THEY KNEW WE WERE IN THE PROCESS OF REPAIRING THEM. I am still so confused on that. Rant over. So anyways despite them knowing we were remediating these issues, the insurance company did technically have a right to drop us for any reason within the first 60 days of the policy. We were given 30 days’ notice. Now it was time to look for a new policy!
Our insurance agent quickly came back with a few quotes but these seemed to be higher. I was so curious as to why/how – we had just done so much work on the property and it was now in much better shape! Turns out, after this latest fiasco, our agent had suggested we expand our coverage. We were going to move from a DP -2 policy, to a DP -3 Policy.
WHAT DOES THAT MEAN?
So I am of the belief that we need insurance for everything in life but with SO MANY different types out there it can get confusing. If you are a landlord, you may inquire about a rental dwelling policy. This dwelling policy will be different than your typical homeowner’s insurance such that a homeowners insurance policy will provide coverage for the structure, liability, and personal property whereas a dwelling policy, aka second home policy, simply insures the structures on the property and does not provide personal property coverage.
There are 3 common types of dwelling policies; DP-1, DP-2 and DP-3. For some reason when this was brought to my attention I felt like I had NO CLUE what that meant. I am sure we must have read about it or discussed it in the past year but I FOR SURE needed a refresher. So after gathering a bit of research from our agent and Google I found the following…
DP -1 Policy
This is the most basic dwelling policy. It is a named perils only policy and covers the actual cash value of those named perils in the event of loss. A named perils or named risk policy means that an item/event is only covered if it is explicitly stated on the policy form. Now I am NO insurance agent but I am going to go with a hard no on this policy – it does not cover much.
DP -2 Policy
DP -2 policies are also named perils only however they typically include a much more extensive list of covered risks vs the DP-1. It is actually the most common level used for rental properties in the United States.
DP – 3 Policy
DP -3 policy is the most expensive but covers the most risks. A DP-3 policy will cover all perils unless explicitly stated that it is excluded. This is what we are moving to. The difference in our annual premium for a DP-2 policy vs a DP-3 policy is only an additional $240 – and to me that is WELL WORTH IT. Besides covering all perils, it also covers the REPLACEMENT value vs the ACTUAL CASH VALUE. If you have an older property, the replacement value may be significantly higher than the actual cash value and in the event something happened, and you had a DP-1 (cash value coverage) vs a DP-3 (replacement value coverage) you could be out a lot of money.
SO HOW DID I NOT KNOW WE HAD A DP-2 vs A DP-3 POLICY?
I did not ask! Our agent had actually covered this property with the previous owner and just switched us over to the same policy. Since the DP-2 is actually quite common for landlords it was a non issue to bring up. BUT I should have asked. Moral of the story is – ALWAYS ASK QUESTIONS and in my opinion – THE MORE COVERAGE THE BETTER. Totally going DP-3 on ALL PROPERTIES going forward.
Any similar insurance stories YOU want to share with us?! Any advice?! Are we missing anything?!
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