By Anita Clinton

As a real estate investor, a good insurance agent is definitely someone you want on your team.  Having the proper insurance in place protects you and your property in the event of unforeseen losses and/or damages.  The type of insurance you will need will vary depending on the type and intent of the property you are purchasing.  For example, the purchase of a primary residence will require homeowner’s insurance while the purchase of rental property requires a landlord policy.  Likewise, the proper insurance coverage for the purchase of distressed properties requires renovation and/or builder’s risk insurance.

Depending on the property, many investors tend to purchase the standard landlord insurance policy.  However, it is important to note that those policies do not cover renovation projects.  To get coverage for your renovation projects, you would want to consider obtaining renovation or builder’s risk insurance.  This type of insurance indemnifies for loss of or damage to the dwelling and property while under construction or renovation and can include materials involved in the project.  It can also be used to cover specific projects such as room additions, decks or remodeling projects.  The policy will most likely include fire, vandalism, malicious mischief, theft, and it can be extended to cover specified risks.  For example, it can include coverage for loss of business income, replacing exterior greenery, replacing plans/blueprints, loss of property and material in transit to the construction site, and temporary storage.  Liability coverage can also be included as an endorsement or a stand-alone policy.

As far as liability coverage is concerned, as an investor in business, you should consider having some form of liability insurance whether it is through your business or personal policies.  In addition, if you are working with outside con- tractors, you want to inquire about the type of insurance and coverage the contractor has.  You should only consider working with contractors that are licensed and insured.  The contractor’s liability insurance should include coverage for business operations performed away from their premises.  In addition, you might want to consider having your contractors sign waivers regarding worker’s compensation and loss of materials.

Renovation/builder’s risk insurance is a temporary policy with 3-, 6- or 12-month policy terms.  The amount of coverage is usually based on the After Repair Value (ARV) for renovation projects or the Full Value at the Date of Completion for construction projects.  One hundred percent of the first three months premium is usually paid upfront.  The premium is calculated using a defined property rate per $100 of the value.  For instance, if the property rate is $.40 on a property with a $100,000 ARV, the first three months premium is $400.  [($100,000/$100) X $.40 = $400]  As with any other insurance policy there are deductibles and the higher the deductible, the lower the premium.

So, for your next renovation project be sure to ask your insurance agent about the renovation/builder’s risk insurance.  You want to be sure your property is protected in the event of unforeseen losses and/or damages.  You want to minimize the risk of being an investor wherever possible and having the proper insurance is a must.

TYPES OF REAL ESTATE INSURANCE

Homeowners Insurance

-         Also known as property & casualty insurance.

-         Normally insures primary or owner-occupied residences.

-         Protects against loss and damages of the physical property and valuable items.

-         Includes liability coverage.

Landlord Insurance

-         Usually provides protection for the dwelling       and other private structures, such as the garage or shed.

-         It also covers the landlord’s personal property used by tenants, such as appliances and furniture.

-         Includes liability coverage.

Renovation Insurance

-         Short-term insurance that covers occupied or vacant dwellings not intended for demolition, but has some type of renovations, repairs, or remodeling work.

-         Liability coverage is optional, with the cost dependant on certain variables.

Builder’s Risk Insurance

-         Normally insures new construction or partially completed buildings.

-         Liability coverage is not usually included.

-         There are exceptions to the type of project and liability coverage

-         The policy can be designed to meet specified criteria.

****************************************************************************************************************

Anita Clinton (AC) is a licensed loan originator with Legend Mortgage.  For more information, visit her website at www.ownsomethingtoday.com.

****************************************************************************************************************

Related Articles:

Did you enjoy that article? Learn something? Then why not buy us a Coffee. It keeps us motivated to continue bringing you practical and useful information.

Related Post
1. MY 1ST REHAB: Cheron Williams
2. Community Investment Corporation: Property Management Training
3. My First Rehab - Danielle Johnson-Pierce
4. CREATING THE MILLION DOLLAR INVESTMENT COMPANY
5. MY FIRST REHAB - Kimberly Smith
6. MY FIRST REHAB - TERRES KYLE - Creating Equity
7. The Importance of Hiring a Project Manager
8. $700 Billion Plan (TARP) - Revisited
9. SUBJECT TO APPRAISAL, It’s Based on the Future Value of a Property.
10. SPACE PLANNING for Real Estate Investors
11. ILLINOIS LAND TRUST
12. Glossary
13. 12 Things to Know About Building Codes & Property Improvements
14. Magic Johnson’s urban development fund hits pay dirt
15. FINANCING FORECLOSURES