Introduction
Buying real estate is possibly the most important money decision a person can ever make. Be it a home for a family, an investment property to generate income, or business real estate, each of these has terrific risk. Though owning property brings promise, it is never risk-free. A fire, theft, act of nature, or liability case can financially jeopardize your assets and cause huge financial losses. That’s where insurance steps in.
Paying for insurance isn’t just doing it to secure your property; you’re doing it for your financial future, your peace of mind, and a cushion when something outside the ordinary happens. With all of the various types of insurance available, what insurance do you really need as a property owner?
The following are the top five insurance policies to consider if you are a property owner.
1. Homeowners Insurance.
If you live in the house yourself, homeowners insurance is a requirement. Most lenders insist on it before they will even consider making a mortgage.
Typical coverage includes:
- Dwelling damage: Your house is insured for damage from fire, storm, or other covered perils.
- Personal property: Loss of personal items due to theft and/or damage.
- Liability coverage: Coverage in a situation where a person is injured on your premises that results in a law suit.
- For instance, if a tree branch fell on your roof in a storm, your policy would pay for repairs. Or if a visitor slipped on your driveway and needed medical care, liability insurance would pay for the accident up to coverage limit in your policy.
Note: Be sure to take the time to select the proper coverage limits and exclusions. Compare policies and ensure you are adequately covered for this sizable investment of yours. Don’t merely buy the lowest premium.
2. Title Insurance
Every time buyers purchase an interest in real estate, title insurance is neglected, yet it is one of the best protections you can have.
Title insurance shields you (and your mortgage company) from a legal battle over ownership of the property. Think about it: you just signed on the property of your dreams and subsequently find out that there is some old lien, hidden heirs who stake claim as the true owners, or worse, a clerical mistake on the deed. Without title insurance, you will pay thousands of dollars in legal costs and potentially lose the property to a third party who has a legal claim. Keep in mind, title insurance protects you and your heirs for life no matter if you or your heirs own the property. The upfront fee, paid at the closing table, is well worth it. Title insurance is a lifesaver with real estate transactions, just because paper is misplaced, or even worse, there are claims that existed way back before you or anyone else had any idea.
3. Landlord insurance
If you’re a renter, homeowner insurance won’t do. Landlord insurance, specifically designed for rented properties, covers you in ways that homeowner insurance does not.
Landlord insurance coverage typically includes:
- Property damage: Repair to the building itself after fire, vandalism, or other natural calamities.
- Loss of rents: Payments if your rental property becomes uninhabitable as a result of damage.
- Liability protection: Indemnity, if a guest or tenant is injured and sues you. For instance, if a tenant has left a burning candle and there is a blaze, landlord insurance will cover you from paying out-of-pocket for the repairs. During the time the property is being repaired, the landlord will indemnify lost rental income.
Pro tip: Ask your tenant to get renters’ insurance, as that will protect their personal belongings, which landlord insurance does not.
4. Flood and Earthquake Insurance
Another of the most prevalent real estate insurance misconceptions is that a homeowner’s policy will include natural disasters. Most policies specifically exclude floods and earthquakes from coverage.
- Flood Insurance: If you live in a flood-prone area, you need to have flood insurance. A few inches of water can amount to tens of thousands of dollars’ worth of damage.
- Earthquake Insurance: If your house is in an earthquake zone, you require this type of insurance. Repairing any type of structural damage following an earthquake costs a lot of money.
Flood and earthquake insurance might be issued separately, but they can mean the difference between recovering from a catastrophic disaster or suffering financial ruin. Given the unpredictable weather patterns caused by climate change, insurance against disasters is no longer optional, it has become a necessity.
5. Liability Umbrella Insurance
Lastly, umbrella insurance provides additional liability that is beyond the coverage your homeowner’s or landlord policy provides.
It is significant because if someone gets injured badly on your property and decides to sue you for $1 million, and your homeowners’ policy limit is $500,000, then you will have to pay the remaining $500,000 out of pocket. The umbrella insurance would cover that $500,000 to you.
Umbrella insurance further provides for those situations that would not be included in your policy, like in cases of libel and slander, even if the act did not occur on your premises, but still come under your liability. This is particularly vital for real estate investors who own more than one property, as there are a number of liabilities that may originate from a rental.
Conclusion
Real estate is more than just buildings, it’s a foundation of financial security and future wealth. With ownership comes risky uncertainty; yet, with proper insurance coverage, you can shield yourself from disastrous loss and maintain your assets secure.
To summarize, the five significant insurance policies all property owners should consider are:
- Homeowners insurance
- Title insurance
- Landlord insurance
- Flood and earthquake insurance
- Umbrella liability insurance
The up-front costs of such premiums will seem like a further expense burden; yet, we feel confident that in the long term, the security and peace of mind are worth infinitely more than the premium cost. Given that real estate probably is one of the biggest transactions of your life, it is all the more necessary to have the best available protection.
