Choosing The Right Insurance For Your Investment – Guest Post Property
Property has always been a safe-harbor investment for investors. From large investors to smaller investors, investing in real estate has proven to offer a stable investment that appreciates in value over time and that also offers a steady income.
Historically, real estate properties appreciate at a rate of 5% every year and this ensures the investor not only beats inflation but also makes some money as well.
In America today, the real estate market is awash with properties as supply outstrips demand and this has created a favorable atmosphere for property investors, especially those with disposable income such as retirees and career investors. But purchasing an investment property comes with its own long list of responsibilities that include rates, taxes, licenses (if any), insurance, maintenance, etc. For an aspiring investment property owner, these responsibilities must first be thoroughly understood before plunging into the market.
Insurance is a key aspect of owning an investment property because it is what protects your investment against unforeseen calamities. Currently, with the depressed housing and property market, it is easy to find cheap properties to purchase. But before doing so, here are some things you need to remember concerning investment property insurance:
The first thing you ought to ask yourself is what’s included? Investment properties (whether homes or office complexes) require unique insurance packages owing to the non-owner use of the properties. Standard insurance, for instance, will cover most of the common risks but may not cover special risks. Investment properties therefore require either a Business Owners Package policy or a Specialty Markets policy, both of which cater to additional risks over and above the risks covered by a general policy.
Insurance Company Rating
The next thing of importance is the rating of the insurance company. It’s not unknown that many insurance companies find themselves insolvent after servicing some hefty claims to the detriment of remaining policy holders. Don’t get caught in this trap. Make sure you go for a well-established and capitalized insurance company that has the highest rating from a regulatory body. They may not always have the cheapest policies but you know you will get a claim paid out in case of any eventuality.
Repairs, Replacements & Inflationary Expenses
Because of the commercial nature of your investment, repairs, replacements and inflationary costs must be factored into the insurance policy. This is called Building Ordinance Insurance. As a rule of thumb, most insurance companies will seek to evade this responsibility. Make sure you negotiate for this in order to offset any costs you may have related to these maintenance and depreciation factors.
Something else to look out for is what is called co-insurance liabilities. This means that the insurance company may give you a policy that only binds them to pay you if the whole property is destroyed but only pay you a part of the settlement if a section of it is destroyed, regardless of the extent of the partial destruction. This gets tricky especially when the whole building has to be torn down and rebuilt because of the incompatibility of repairs.
Finally, always request an insurance history of a property before purchasing it. If a property has had a string of claims in the past, it may be difficult or expensive to find insurance for the property owing to what insurance companies call a five year loss run. The best way to get off the block would be to buy a newly built property that has no priors and as such will give you a fresh start to your investment property venture.
Karen Takken is a business insurance broker with SAI, a leading business insurance solutions provider. She has been in the industry for over a decade and advises clients on business insurance and liability mitigation.