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1. Understand the Limitations of Personal Lines
“For a rental property that is occupied by a tenant, it is often the intention to write the property on a personal DP-3 line, which typically comes with a $300,000 liability limit,” he said. “And for customers who want a higher liability limit, you can also opt for a personal umbrella. This is simple and can work fine in some situations. But there are many reasons why this approach can fall short.
“What happens if the property is vacant between tenants? Or if the property undergoes a cosmetic renovation before a tenant is placed? Many forms of housing are not suitable for vacancy or renovation.
“How do you manage their portfolio as they buy and sell more and more properties? Most personal insurance companies limit the number of rental properties they can carry a person. In addition, if the investment property is owned by an LLC, Trust, or other entity other than the named insured on your homeowners’ policies and umbrella policies, coverage may not be provided for incidents that occur on the property. Property owned by an entity may not be insurable at all under a home policy. So if your client has more than four or five properties and the property titles are not in their personal name, then this just won’t work.”
“Undoubtedly, from a coverage perspective, the bigger issues stem from the liability risks.”
2. Pay Attention to Harmful Exposures to Liability
“Personal lines liability limits typically have defense costs that are within coverage limits,” he noted. “With a $300,000-$500,000 cap, defense fees can severely limit the amount that can be applied to a payout.
“Many personal insurance policies contain a ‘Total Pollution Exclusion’. This means your customer is at risk if he or she has a tenant who gets sick, or worse, dies from what’s considered carbon monoxide poisoning. Since an umbrella policy follows the exclusions of the underlying liability, this exclusion means they must defend themselves in tort.
“Some Personal Lines umbrella policies also include a ‘Total Business Venture’ exclusion, which could exclude damages or lawsuits on a rental property because it generates income or is intended to produce.
And be aware of dog liability exclusions or breed restrictions, too. Many personal line policies list 12-14 of the most vicious breeds excluded from coverage. While some investors don’t allow dogs as part of their lease, this can still be a problem. pose a risk for the unexpected on the ground.”
3. Use a trading form
“I would recommend treating investment properties as they are and insuring them on a commercial policy,” he offered. Not only is the commercial property form written to protect the landlord well with coverages such as rental loss, but a commercial general liability policy also typically resolves the exclusions listed above. And with special limits per property starting at $1 million per event (with defense costs outside this limit), an overarching policy may often not be necessary.
“Writing coverages on a commercial form also helps to isolate an investor’s personal assets and business assets. Imagine an investor being sued for the wrongful death of one of their tenants. The lawsuit could easily exceed the $300,000 limit typical of a personal lines policy. If an umbrella liability policy collectively insures everything the investor owns in both personal and investment matters, the injured third party can go after the investor’s personal assets. If you look the other way, an investor causes a car accident that kills another driver. The wrongful death lawsuit by the driver’s family could come after the investment properties if these assets are lumped together.”
4. Map the market and service challenges
“After several years of frequent and catastrophic losses, it is becoming increasingly difficult to find carriers with an appetite for the risk associated with insuring investment properties,” he noted. “Transporters are limiting capacity, especially in areas prone to storms and wildfires, and are concerned about the added risk associated with tenant-occupied, vacant buildings and properties undergoing renovation. All of this has led to uncertainty about who will be in charge. still playing in this space, and having a hard time finding competitive rates to win an account.
“Real estate investors can also present a unique challenge for real estate agents, in addition to finding the right coverage and carrier. Frequent changes in a home’s occupancy rate can mean canceling and rewriting coverage every few months when a renovation is complete and the site is vacant, then when a vacant property gets a new tenant or is sold. When an investor buys a new home, you have to start the application process every time. Canceling policies, issuing refunds, putting together the right coverage for multiple carriers, and managing multiple annual renewal dates as the portfolio grows is a headache.
5. Find solutions to these challenges
“The answer to these challenges for real estate agents, and in turn their real estate investor clients, is the REInsurePro ProgramREInsurePro’s real estate investment program is endorsed by an arsenal of ‘A-rated’ carriers with an appetite for the unique risks these properties pose, even in disaster-prone areas. By partnering largely with national surplus and surplus carriers , REInsurePro has been able to build a flexible and competitively priced program for any type of investment property.
“The monthly reporting form is structured for investors’ frequently changing portfolios, with the ability to make seamless coverage changes between occupancy status each month without the need to cancel and rewrite policies. Understanding that real estate investors can leverage their industry relationships and typically do not pay retail rates for repairs and materials, REInsurePro allows investors to cover replacement costs at a much lower cost per square foot than many insurers ($70) and has no co-insurance penalty at or more than $ 50 per square foot.
Better yet, REInsurePro gives agents instant access to propose and commit coverage through our industry-leading technology platform, customizing coverage to meet credit requirements with flooding, earthmoving, equipment failure, ordinances or laws, and more. Then service your client as their portfolio changes every month, with all their properties on one reporting and billing schedule. You avoid the hassle of keeping track of different renewal dates as coverage will remain in effect until canceled.”