5 Important Questions to Ask Your Property Insurance Agent

Good real estate investors are smart people, but the smartest ones are those who realize that they don’t know everything. No matter how knowledgeable you might think you are about the real estate industry, no one knows everything about it. This is especially true for new and less experienced investors and landlords, who are still learning the ropes as they build their business.

As such, investors should consult with specialists who have the expertise they need to make the best investment and business decisions. For property managers and investors, one of the most important people to talk with is their property insurance agent. Failing to know what coverage you have or need could lead to serious financial issues down the line, so with every new property acquired, it is vital to ask one’s insurance agent some questions.

Here are six questions that every property manager or investor should ask their insurance agent about a property.

Does the property have the right type of insurance for an investment/rental property?

This is arguably the first and most important question to ask an insurance agent after acquiring a property. Many people don’t know that a normal homeowner insurance policy is generally invalid within 30 days of vacating a property and converting it to a rental property. If you plan on renting out the property, you will need to have an insurance policy in place that is built around your purpose. 

Do I need more specialized insurance coverage?

The type and amount of insurance you will need are heavily dependent on the specifics of the property and the area it resides in. Along with the more general liability insurance that is always needed, you will likely need additional insurance depending on the age and location of the property. This can include insurance for certain types of disasters (like floods and earthquakes) or those related to specific faults with the property (such as sewer backup insurance).

Are any outbuildings on the property covered?

You should double-check with your insurance agent and obtain quotes if necessary. Many insurance policies do not include such buildings unless they are specified.

What is the Replacement Cost value of my property?

Replacement cost is a concept that tends to confuse people, with roughly 48% of homeowners not knowing what it truly means.¹ In real estate terms, replacement refers to the cost to repair or rebuild damage to a home or rebuild it completely at an equal quality level at current prices.² This is in contrast to the Actual Cash Value (or ACV), which is the depreciated value of a property at the time of the loss.³ Knowing the replacement cost of your property (and whether or not it will be covered) means you know its true value.

What else can I do to protect my property?

Most discussions with insurance agents tend to focus on catastrophic losses, but regular wear and tear can also have a major impact on a property and its value, even though it isn’t covered by insurance claims. Some insurance agents may have good advice for mitigating this, including investments that can build up a property’s long-term value.

While you might not be able to know everything there is to know about property management, by relying on highly skilled specialists, you can supplement your own knowledge to make more informed decisions!

Endnotes

1.  Masterson, L. (2018, July 5). 950+ Homeowners Survey 2018: Turn’s Out Many Are Unaware. Insurance.com. https://www.insurance.com/coverage/homeowners-insurance-survey-2018.

2.  Masterson, L.

3.  Araujo, M. (2020, July 6). Replacement Cost vs. Actual Cash Value in Insurance. The Balance. https://www.thebalance.com/replacement-cost-insurance-vs-actual-cash-value-4154015.