The first of the year is upon us. We are soon to make New Year’s resolutions — and not long after we are fairly certain to break them.
But the turn of the calendar is also a good time to do something in real estate that has become increasingly important: Check your insurance coverage.
I bring this up not only because we have recently seen various hurricanes, floods, tornadoes, fires, windstorms, earthquakes and other tribulations of historic proportions, but also because the nature of homeowners insurance is changing.
To start, it’s perfectly plain that homeowners insurance is something one never uses except in a dire and substantially-expensive emergency. Small claims are foolish — they can lead to higher rates and outright cancellations.
Since small claims are hazardous to your coverage, it makes sense to increase your deductible. Instead of $500 go to $1,000 or more. After all, you’re not going to jeopardize coverage over $500 so why have such a small deductible? A higher deductible will reduce premium costs and that’s a good way to start the New Year.
It also makes sense to speak with your insurance broker every so often — and now is the time. You want to know about the status of your policy (whether it’s in force), whether coverage should be tweaked in light of changing home valuations and if any new coverage is required.
You want to ask questions because your mortgage lender requires that you have fire, theft and liability coverage. To make sure this requirement is being met lenders carefully check insurance policies. Unfortunately, paperwork is sometimes botched and needs to be clarified. If there is a lapse in your coverage, or if there is thought to be a lapse, you are likely to get a letter from your lender demanding proof that you actually have coverage. If you do not have coverage, the loan can be called.
For those with rental properties the situation is both similar and different. The cost to insure a rental unit is less than the expense to cover a residence of equal value. The reason for the lower insurance cost is that the rental-unit policy provides less owner coverage.
What’s not covered in a rental-unit policy for property owners is the stuff owned by tenants and some of their liability. This is not a gap that should be re-assuring to anyone: Owners should make certain that tenants have renter’s insurance so that if tenant goods are damaged or there is an insurable claim against them the tenants will have coverage. Also, if there is a problem and tenant furnishings or other property is destroyed, potential claims against an owner will be held to a minimum since the tenant already has coverage.
To protect themselves — and their tenants — owners should insist as a condition of the lease that tenants get renter’s insurance. This is fair, after all if the mortgage company can require insurance from borrowers to protect the value of the loan’s underlying security (the house), landlords can also shift costs and require that tenants get appropriate coverage.
Renter’s insurance tends to be inexpensive, all the more reason to require it. Moreover, such coverage can be enormously valuable.
A number of years ago a tenant cooking breakfast somehow set a kitchen on fire. It was an accident, such things happen and it is why one has insurance. What wasn’t burned was soaked by the fire department and holes were made in the walls to check for hidden fire and smoke. The cost to repair the damage was well into five figures.
The house was filled with smoke detectors so no one was hurt. But still, there was the matter of paying for the damage.
The way it worked was that owner’s policy paid for the repairs, the renter’s insurance paid the owner’s insurance company and the tenant paid the deductible. While an unwanted fire is never a good thing, in this case everyone’s damages were held to a minimum, in large measure because both the owner and the tenant had proper insurance. Years later the tenant is still at the property.
So pick-up that phone and dial your insurance broker. A little chat once a year can be very re-assuring.
Written by Peter G. Miller
Central A/C
