Insurance for your real estate investments
Contact
Deeanna Rosenbaum
Straight Path Insurance Services
972-534-1405 fax
2150 S Central Expy Ste 200
McKinney, TX 75070
Member Agents Alliance
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Buying an investment property, and not sure what type of insurance you need?
Scenario 1. You are buying a house in great condition, or the house needs minor repairs/updates that will take no more
than a few days to complete, and you plan to rent the house out right away.
You can buy a traditional “Rental Dwelling Policy” for this house. This policy type is suited for homes occupied by a long
term tenant, with no more than a 30 day gap in residency. When you buy a dwelling policy, you are purchasing a
package of coverage options on the house. This can include coverage for your home, other structures, liability and
medical payments, and loss of rents if the home is damaged and can’t be lived in during the repairs. If you own any
furniture or appliances inside the home, you should also request content/personal property coverage for the value of
such items. Multiple coverage levels/choices are available for dwelling policies (Form 1, 2 and 3). I always advise
purchasing the most comprehensive choice, which is “Form 3” as it allows replacement cost on the house and water
damage coverage, among other important features. Purchasing strong protection for your investment is an investment
itself!
Scenario 2. You are buying a home that needs some minor work (less than 25% of the total value of the home) that will
take longer than 30 days to complete before any renter can occupy it, OR you plan to “flip” the house you are
purchasing by relisting it as a home “for sale”.
In this situation, the house would be ineligible for coverage under a traditional Rental Dwelling Policy. Instead, you need
a policy that accommodates a “vacant” home. Vacancy policies do also offer a package of coverage options on the
house, including coverage for your home, other structures, liability and medical payments. Unfortunately, there is
usually no option to upgrade to replacement cost or add other perks. Vacancy policies do tend to be expensive in
comparison to other home/rental insurance plans. However, most insurance companies inspect newly insured houses,
and a “for sale” sign or unoccupied home may cause your policy to be canceled. Additionally, if you experience a claim
and the insurer sees that the home has been vacant, most coverage under a traditional insurance policy will be void. The
increased cost of a vacancy policy can save you not only from hassles, but also from finding yourself without insurance
coverage when you most need it. Generally, you can pay on a month to month, or short term basis for this type of
coverage so that you can reevaluate your insurance needs as they develop.
Scenario 3. You are buying a home that needs major renovation or upgrades totaling more than 25% of the home’s
value.
In this case, you will need to buy a Builder’s Risk policy. This type of coverage allows you to insure not only the value of
the property you purchased, but also the value of the upgrades and repairs you will be making to the home. Some
limited coverage is available for materials and tools on the jobsite. A caution to be aware of with this type of policy…
typically no liability coverage is included. Investors are advised to purchase general liability coverage for their business
to ensure that all projects and actions are covered. Individuals purchasing this type of coverage are most likely able to
extend liability to the property from their primary homeowner’s insurance policy for a nominal fee, depending on the
home insurer. Another stipulation to be aware of is that this policy type cannot be renewed or extended. You are
usually able to buy 6, 9 or 12 month plans, and may want to purchase the next longer period since rehabs on homes do
not always go as planned. Otherwise, you may find yourself searching for an alternative insurance policy before your