Expect… the Unexpected
Sometimes in life, things happen that just are not fair. The neighbors grass is greener, your sibling’s kids get better grades, or your house just burned down and got swept away in a flash flood. Though the odds are small, it is better to have a plan in place for sporadic natural disasters that could affect your livelihood than watch all your lifes work wash down the drain… (or in this case, the overflowing river).
How do you prepare for the unexpected?
The obvious answer is to buy insurance to make sure your possessions are covered. This idea is all well and good until you break it down to how the coverage actually works*. (*hint-hint — the asterisk is there for a reason, read the fine print). The first question: are you going to live in your home, or is it going to be primarily a rental property? Then you must figure out which insurance will actually cover you, which is where insurance companies can trip you up. Almost every homeowner has some variation of homeowners insurance. However, if your rental property is “covered” by this, it is really about as beneficial as a newspaper in a monsoon. The trick here is to get “Landlords Insurance” which boasts some landlord friendly protections that could be especially useful in the event of an emergency.
What does Landlord’s Insurance do?
To start, it covers the basics such as protection from fire, explosion, wind, hail, lightning, debris removal, repair after loss and damage from a vehicle or aircraft. This covers the basic risks that a landlord is concerned about for the most part, but there are some glaring holes that require extra insurances. Vandalism and malicious mischief and loss of rents insurance are also highly recommended. Say your tenant is unhappy and feels the need to show you by “redecorating” your property with spray paint. Vandalism and malicious mischief insurance will provide protection from this. Loss of rents insurance kicks in when the property is under repair and uninhabitable. The insurance company will pay the rent since no tenant can live there.
Something else to keep in mind is the need for area specific coverage. These are important, especially to owners in areas with a risk of natural disasters such as the major two in California, floods and earthquakes. To emphasize the importance of flood insurance, over the past 5 years nationwide there has been an average of 3.6 billion dollars in damages caused by floods per year.
It is important to note that landlord insurance will not cover maintenance on appliances within the house, but it will fix the damages caused by the appliances. Think about a dishwasher that has flooded. The insurance will pay to get the floors and anything else with water damaged repaired, but they will not repair the dishwasher. Another item not covered by landlord insurance are sewer backups. Again, the insurance will cover damages caused by it, but will not pay for the repair invoice.
One final thing to watch for is what kind of replacement coverage your policy provides. The two different types are Actual Cash Value (ACV) or Replacement cost. ACV will pay current market home value for a destroyed property. Replacement cost will pay for the complete reconstruction if it is destroyed. Even though replacement cost policies are more expensive, they may be worth it in the long run. The real question is, how protected do you want to be?
Have you recently filed a claim? What was your experience? Any tips or recommendations are greatly appreciated in this community.