NUTS & BOLTS
ASSET COVERAGE
More Myths Debunked MAKE SURE YOU HAVE THE PROPER COVERAGES IN PLACE BEFORE DISASTER STRIKES YOUR INVESTMENT PROPERTY.
by ShawnWoedl
email so you have the response in writing. If something happens in the future, you will have leverage in the event of a declined claim, if needed. MYTH #5 I HAVE A PERSONAL UMBRELLA POLICY SO I DON’T NEED ‘COMMERCIAL’ INSURANCE We hear this myth on daily basis. Insurance agents collectively do a poor job of explaining to their clients what an umbrella policy is and isn’t. An umbrella policy is not a “magic bullet” that covers everything. In fact, it extends zero
home he had owned and occupied for years into an investment property. He now has a tenant who has been living in the home for more than a year. Our first question to himwas, “Did you let your insurance agent know you were converting this location into an investment property?” He quickly answered, “No.” He didn’t feel the need to. After our conversation, we asked him to contact his agent to ask whether the policy in force was one that extended coverage to a property being occupied by a tenant, a “non-owner” property. His agent replied that the company would need to
hese are some of the most common misconceptions about insurance that we have come across in dealing with hundreds of new clients across the coun- try. In most cases, we are able to speak to clients before a loss that could have put their business in jeopardy. Unfortunately, some investors aren’t so lucky. One quick note before we delve into the subject matter: You will see commer- cial insurance policies referenced as what coverage you should have. In the insurance world, commercial insurance policies are best utilized to cover anything from single-family dwellings to large apartment complexes and all lines of commercial real estate in between. MYTH #4 A PERSONAL DWELLING FIRE POLICY IS SUFFICIENT TO COVERMY NON-OWNER- OCCUPIED RENTAL We had the opportunity to work with a newer investor who recently converted the T EDITOR’S NOTE: This excerpt is a con- tinuation from “Debunking the 13 Insur- ance Myths for the Real Estate Investor,” which we began last issue. We’re exploring three common misperceptions about per- sonal dwellings’ fire policy sufficiency for nonowner rentals, umbrella policies and how claims prior to owning a property can affect your insurance rates. This arti- cle will provide truths regarding coverages you need to best protect your investment properties. Whether you are just getting started or are a seasoned investor, our aim is to give you the knowledge and confi- dence to know your assets are protected and your business is secure.
coverage to your structure—or any property coverage at all! Umbrella policies are a way to garner additional lia- bility coverage above and beyond what your under- lying or primary liability policy provides to you. Meaning, if your underlying liability policy provides you
cancel his existing policy and rewrite a new policy to insure this new exposure. What would have happened if a fire had occurred in the prior year while he had been renting out the home? The assigned claims adjuster
would have visited the property to investigate the loss. During this visit, the adjuster would have discovered the home was not “owner occupied.” The policy purchased was for an “owner-oc- cupied dwelling.” Therefore, the insurance carrier would have declined the claim due to material misrepresentation. The owner would have been left on his own to rebuild his investment property. Don’t give the insurance carrier a reason to deny a claim. If you are reviewing your declaration pages on your current policy and are unsure if you have the correct type of policy to cover your non-owner-occupied dwelling, email your agent and ask for clar- ification. We always recommend you use
with $1 million per occurrence and you purchase a $5 million umbrella, you have increased the per-occurrence limit of coverage to $6 million. Similar to the liability policies we discussed earlier, personal-line umbrella policies are underwritten very differently from commercial-line umbrella policies. Many personal-line umbrella policies contain a “Total Business Venture Ex- clusion.” Even if you pay to include your investment properties on your person- al-line umbrella policy, it’s possible you have no additional coverage through your umbrella because of this exclusion. Umbrella polices also do not provide you
70 | think realty magazine march :: april 2017
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