Everything You Need to Know About Real Estate Investor Insurance

Also called landlord insurance and real estate investor insurance, rental property insurance is a form of liability insurance to cover the risks of owning rental properties. If you invest in real estate, getting the right real estate insurance is a good idea, especially when it comes to protecting your investments. When choosing the right type of real estate insurance, there are several factors to consider before purchasing. Here’s everything you should know. 

Three small grey brick houses.

What is Real Estate Insurance?

Real estate insurance is insurance of property, land, and buildings. This special type of coverage protects property owners who lease or rent building space used for offices, service businesses, and retail stores. Often, real estate insurance includes replacement insurance terms for reconstruction costs of repairing or rebuilding real estate that is damaged. 

 

Furthermore, real estate insurance offers coverage for liability costs, property damage, and loss of income. Whether you are renting your investment property, vacation home, or house, insurance is an important protection against the potential financial risk that is associated with renters living on your residential property.

How Much Does Realtor Insurance Cost?

Real estate insurance is typically 20-30% more expensive than homeowners’ insurance because these properties are considered a business by the insurers. An average homeowner’s policy is about $300 to $1,000 per year. This means that if you add 25% to the aforementioned price, the average premium goes up to $375 to $1,250 per year. Some of the factors that affect the calculation of premium are:

  • A liability insurance policy that safeguards an investor against personal lawsuits
  • Dealing with a business rather than a personal property
  • Higher chance of default on an investment property compared to a primary residence
  • Protection against loss of profit

Why Do Insurance Companies Invest in Real Estate?

Insurers and reinsurers have searched for the latest methods on how they can keep their investment returns and reduce their risk by accommodating new classes of assets. Many insurance companies have focused their attention on real estate investing and these include direct and indirect real estate debt and infrastructure debt. They create custom real estate investor insurance for a purchaser or owner of the aforementioned assets. Investment-grade real estate debt is an appealing asset for many insurance companies since it provides:

  • Bigger recovery rates compared to corporate bonds
  • Bigger rates of return compared to public debt
  • Bigger margins and smaller loan-to-value levels compared to the pre-Global Financial Crisis

Insurance underwriters do not directly invest in real estate. Instead, they invest in real estate investors and their property portfolios. Typically, an investor and his partners would cover their real estate investment risks with adequate coverage as well as additional insurance in the form of riders.

Insurance companies also have limits for property coverage. They impose coverage limits for a given area. This decreases potential losses when an area incurs flood and fire damages. In the same manner, real estate investors buy insurance from different companies if their portfolio consists of properties which are adjacent to one another, or are clustered within an area.

What Type of Insurance Do I Need for a Rental Property?

Real estate investors face financial risks from circumstances that are way beyond their control, including property loss caused by liability claims, flood, wind, or fire. Here are different types of insurance programs to choose from:

  1. Single and Multifamily Insurance: Some insurers offer multiple property programs, where investors who own 10 or more locations of single or multifamily properties can be eligible. The program lets you add brand new properties in the convenience of a simple phone call – no application needed. It can also accommodate government-subsidized properties, market rents, buildings under renovation, mixed-use real estate properties, vacant land, and vacant buildings.
  2. Apartment Building Insurance: This insurance program is a great option for an investor with individual apartment buildings and huge apartment complexes. For those with more units, discounted premiums are available. This insurance program offers vacant policies for vacant buildings and builders risk policies for buildings that are under major renovations.
  3. Commercial Real Estate Insurance: This insurance program provides quotes from an exhaustive selection of insurance coverage for all kinds of commercial real estate. Real estate investing with partners would require comprehensive insurance coverage, including those above. These can be communicated with the insurer by phone, and the amendments added automatically.

What Is the Coverage of Rental Property Insurance?

The insurance coverage is different from insurer to insurer, but the policies will typically cover the structure or dwelling of your apartment complex or condo unit, as well as your personal belongings within the property, loss of income, and liability coverage. It has distinct features that can’t be found in other forms of insurance. The following tips can be helpful to cover a wide portfolio of real estate properties.

  • Dwelling Coverage: the insurance covers physical damage to your property, this includes damage to the structure of your apartment or home. For instance, it will pay for the damage to your roof and walls but not for the personal belongings of your renters. The coverage will only pay for damage that’s due to a peril, such as lighting, fire, and more.
  • Landlord’s Property Coverage: compared to renters insurance, landlord insurance, and real estate investor insurance doesn’t pay for the personal belongings of the tenant that lives in your property. It will only cover objects on the site that belong to the landlord. When looking for rental property insurance, you might want to check if the property coverage is part of the insurance company’s basic policy.
  • Liability Coverage: Liability coverage will safeguard you from medical costs and legal fees if a tenant or guest is injured or hurt while on your rental properties. Typically, if someone is injured around the premises of your home, condo unit, or apartment complex, because of a fault in the structure, then that person is covered.
  • Loss of Rent Coverage: this particular coverage offers protection for potential income loss in case the property you rent out is not ideal for living due to damage caused by fire, flood, and other covered perils. You can treat it as a kind of rent guarantee insurance. The coverage will last for a specific period, like 12 months for example. Take note that loss of rental income is not always present in all insurance, thus you need to examine your policy before buying it for this kind of coverage.

What is Real Estate Agent Insurance?

Insurance for real estate agents is designed to cover the needs of a real estate agent. Choosing the right real estate agent insurance coverages to fit the needs of your real estate agency is vital, as it can protect against the high costs of claims made against you. 

Real estate agent insurance cost is calculated based on several factors, including business size and claims history. For example, a real estate agency with over ten employees will have different costs to insure than an independent agent. 

Finally, real estate insurance is about 25% more costly compared to the homeowner’s insurance policy. If you are planning to get insurance, compare quotes from different issuers. You should also consider additional coverage for specific cases of real estate investing, as well as an insurance program that covers different risks like flood or fire.

If you found this article helpful, you might also be interested in reading more about Contractors Insurance as well!