Monday, October 15, 2012

Investment Property Insurance and what to cover.

I have been managing real estate investment property for many years.  I am a big believer in having the right insurance to cover your assets and to avoid major disaster.  However, there are things insurance will not normally cover that can cost you a small fortune.  Over the past 20 years the two things that stand out in my mind regarding insurance policy coverage are: Water damage and flood damage and Personal Liability issues.

Typically you will be covered for fire on your rental property but at times you may not be covered for water damage caused by flooding or by a leaking roof.  It is very important to read your coverage and confirm with your insurance agent before you relax and rest easy.  There are many ways for insurance companies to defend against payout when it comes to water damage or leaks so it is necessary to be very clear as to what will be covered in your rental property.  Ask your agent if you will be covered when a pipe breaks in the middle of winter during a tenant changeover.  Then make sure that your pipes can withstand a few cold nights in case the power or gas is ever shut off.  This is especially important if you are living out of town that is miles away from your unit.  Most people will swear they will never have power turned off at an apartment but when you have tenants in a property and they are responsible for the gas bill, things can happen.  In certain cold weather states it against the law to turn off gas during the coldest months of the year so they often decide to turn things off right before the cold weather date hits and if the tenants do not pay the bill, the power could be off for several days before you find out.  I cold snap could cause major damage to your copper pipes.  Typically pipes will not burst due to cold after just a day or two but it is important to be sure you are covered in case of emergency.

Your insurance agent may not be as concerned as to what is covered as you are and may not be clear about the details of your coverage if you do not ask the right questions and if you do not shop around to get the best deal.  Insurance agents have a huge incentive to just get you locked in and collect a premium because they know most people rarely change insurance and rarely make claims on rental policies for minor claims.  Protect yourself and your interests by being an informed consumer and know the details of your income property insurance policy. 

The other thing I have learned that is important is that if your tenant falsely accuses you of an assault your insurance typically does not cover any legal fees or cost necessary to defend against bogus and frivolous law suits.  If someone accuses you of an assault the insurance typically has an exclusion to this type of coverage.  So even if you are innocent and have not done anything wrong, the fact that someone has accused you of something means your insurance will not cover you in this matter.  Of course that is unless you pay extra in the beginning and get a special rider that will cover you against you get sued for assault by a disgruntled tenant or by someone trespassing on your property.

It seems more likely in Las Vegas I suppose because the over abundance of lawyers here and the fact that often people will decide to settle if they have any degree of guilt or any fault in the matter.  It can just be for $10,000 or $50,000 but there are lawyers who will work on a contingency basis and file suite against a landlord if they think they can get a quick and easy settlement.  If you are guilty of assault it may be in your best interest to hire a lawyer and work out a settlement but if you are not guilty and have not touched your tenant or harmed them in anyway then you need to fight this claim and not allow it to be settled.
I have dealt with a bogus claim recently and refused to even consider a settlement or even hire a lawyer.  The absurd case went on for nearly a year and it did cost me over $500 in order to answer the charges and to claim my innocence.  It was several hours of my time as well and a lot of aggravation wondering what would happen and how to get beyond something so silly.  It went as far as the mandatory arbitration hearing.  I was informed when I arrived at the hearing of the changes to the case.  Apparently the lawyer was informed by his clients to withdraw the case and not move forward toward a court date.  It was a big relief to know that the truth came out and that the plaintiff had not one shred of evidence to substantiate the claim.  It was a complete falsehood.  The plaintiff had filed an false police report and incurred several charges in the emergency to try and set up the ruse.  He even went as to far as to have the ambulance come to take him to the hospital for his alleged injuries.

I had never dreamed it would be necessary to have an insurance policy to cover me in case I was accused of an assault and battery.  I didn't realize that it didn't matter if I actually did anything or not and that if you are accused you have to pay to defend your good name and reputation.  After nearly 20 years of being a landlord and dealing with many wonderful tenants and a few bad ones, I learned just how low some people will go if they have an unwarranted feeling of entitlement.  However, I still believe real estate investment property is the best way to generate income and to plan for your retirement.  There are so many tax advantages when generating passive income.  Also real estate is the best vehicle to get started investing because you can often get in to a property with less than 10% of the total cost of the investment. 

Read more about using leverage to get started in Real Estate Investing Here at  Income Property Las Vegas and read the article Leverage and Investing

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