Introduction to Property Insurance

Introduction to Property Insurance
Investment property insurance is a tough market. There are still several companies that offer coverage, but the list gets smaller everyday. There are different policies for the different phases of an investment property. Knowing what insurance to order and how long to have coverage are the major issues in property insurance.

Terms to know
A Policy is the word used to refer to the actual insurance product. Ex. A Rental Policy or a Homeowner’s policy.
Premium is the money paid for the policy; simply put it is the price.
Fully Earned means that you cannot get a refund on the premium even if you cancel the policy before the full term.
To Bind property means to make the insurance effective even if the premium has not yet been paid. You may here from an agent “We’ll bind the property today and just send you the bill.” This means that the property is covered if it burns down tomorrow even if the bill is still in the mail.
Additional Insured refers to who is covered through an insurance policy. The lender should always be named as the additional insured in order to cover their position in the property.
A Dec Page is a page from the insurance policy that tells basic information about the coverage. Many lenders will want a copy of the Dec Page as their proof of insurance.

The Different Types of Investment Property Insurance:
Vacant Dwelling Policy covers a property when no one is living there. Houses being rehabbed, sitting on the market, or waiting to be rehabbed should all have a Vacant Dwelling policy. These policies are often fully earned. Because of this, Vacant Dwelling policies should be purchased on the shortest timeframe available as long as the cost is relatively the same per month. Coverage can usually be purchased monthly or for a three month minimum. Premiums are usually paid at closing or billed to the client. BD and all of its clients must purchase insurance when financing any property. Lenders require adequate coverage and typically will not close without proof of insurance.

Rental Property Insurance is usually purchased on a yearly policy. The entire year’s premium is usually paid upfront. Often it is paid for at the closing of a loan. Some portion of the premium may be fully earned, usually 3 months, but the rest is refundable according to the amount of time that the policy is in force. Credit scores affect an investor’s premium. The better the credit the less you pay for insurance. Also, there are some insurers that will only write rental property policies if they also insure your home or car. Many times they will limit a client to five policies. Often times these five policies will be very cheap compared to other insurers. It is perfectly acceptable to have your property insurance with multiple agents in order to get the best deals.