How to Insure an Investment Property

You’re buying an investment property? Congrats! 

Investing in a property to flip or rent out can be a fairly lucrative endeavor.

But with any investment, there are also associated costs. One of those costs is insurance.

At Berry Insurance, we’ve helped many clients get the insurance they need to protect their investment properties.

And the first question these clients usually ask is “What type of insurance do I need?”

Our answer? … “It depends.”

There isn’t one and only type of insurance for investment properties. The coverage you need actually depends on the size of the property and its tenants.

In the following article, we’ll break down all the investment property scenarios, and the insurance you need for each type.

Insuring a small, tenant occupied home:

If you are renting out a one or two unit property, you will need to insure it with a dwelling fire policy.

A dwelling fire policy is very similar to a homeowners insurance policy, but is more catered to the risks of a rental property. 

It includes the following coverages:

Dwelling: This section of the policy covers the actual structure of your home if it is damaged from a number of causes.

Other structures: This section covers damage to structures on the property’s yard that aren’t attached to the property, such as fences, garages, sheds, pools, and driveways.

Personal property: If you (the homeowner) have any personal items on the property, insurance will pay to repair or replace them, subject to your deductible.

Medical payments to others: This section covers emergency medical expenses to a person who is injured on your property from a fall, laceration, a dog bite, or more.

Personal liability: If someone is injured on your property and sues you for liability, this section covers medical expenses and any legal fees/settlements.

Fair rental value: If the property is unable to be occupied due to a disaster, insurance will pay you for loss of rental income during that period, up to a certain cap, which can be a dollar amount or a time period.

Outside of these main coverages, there are optional coverages available at an additional cost including water backup, equipment breakdown, and service line coverages.

It is important to note, that these coverages are for you (the owner) only and do not apply to any tenants. In order for tenants to protect their belonging or have liability coverage, they should have their own renters insurance policy.

The cost of dwelling fire coverage can range based on a number of factors including the dwelling limits, size, location, and more, but we typically see them fall in the $1,500 - $3,000 range.

Insuring a vacant property (not under renovation):

If you’re buying a property that will remain vacant for a period of time you will need to insure it with an unoccupied or vacant home policy.

Because vacant buildings are more susceptible to vandalism, it needs this specific policy designed to protect it from these risks.

Since nobody is occupying the property, a vacant home policy has less coverages than a standard homeowners insurance policy, or the dwelling fire policy we mentioned above. 

These policies generally only include:

Dwelling: protecting the structure of your property from damage from a number of causes. 

Liability: providing coverage for any injuries that occur on your property.

Because of the risks associated with a vacant property, these policies are typically about 50% more expensive than home insurance policies.

Insuring a vacant property under renovation:

If your vacant property is under renovation, then there is a different type of policy you will need: a builders risk policy.

Builder's risk insurance is an individualized type of property insurance, formulated specially for buildings under construction.

Also known as “course of construction" insurance, builder's risk insurance protects the property and homeowner from financial loss resulting from damage or loss of the project’s structure and materials during the course of construction.

A standard builder’s risk insurance policy will cost 1-4% of the total construction cost. 

For example, coverage for a $400,000 dollar project could cost around $4,000 to $16,000.

For more information about builders risk, check out this article Do I Need Builders Risk Coverage for my Home Project?

Insuring a multi-unit property:

If you are insuring a multi-unit property (with usually four or more units), you would actually need a commercial insurance policy.

Insurance companies will see larger multi-family homes as a business generator for the owner, so they will not insure the property under a personal insurance policy.

So if you are in this situation, you will need a business owners policy or a package policy to provide property coverage and general liability coverage.

Commercial property insurance: 

Commercial property insurance provides coverages related to damage occurring on your property. It includes the following coverages:

Dwelling: This section of the policy covers the actual structure of your home if it is damaged from a number of causes.

Personal property: If you keep any of your own items on the property, they will be covered under the personal property section of your property insurance.

Loss of rent: If damage causes your property to be uninhabitable, property insurance will pay for the lost rental income during that time.

General liability insurance:

General liability insurance is a type of business insurance policy that covers claims made against your business from someone who experienced bodily injury or property damage. It can also provide coverage for injuries sustained from your product, claims for libel, slander or defamation, and claims filed by your employees or other 3rd-parties.

Liability insurance covers a wide range of injury, property damage and other types of scenarios that could happen at your business. Examples include:

• Injuries to someone else for an accident you cause
• Damages to someone else’s property
• Contractual liability (limited)
• Coverage for your products (limited)
• Advertising and personal injury coverage
• Pollution (optional)
• Emergency medical payments (optional)
• Electronic data/cyber liability (optional)
• Claims made against you by your employees (optional)

It is important to note, that these coverages are for you (the owner) only and do not apply to any tenants. In order for tenants to protect their belonging or have liability coverage, they should have their own renters insurance policy.

The cost of insuring this type of property can vary significantly depending on the size of the building, number of units, cost, and location, but you can generally expect to pay somewhere from $1,500 to $5,000 per year.

Protect your investment:

Insuring an investment property is a big deal. Since you aren’t living on the property, you have less control and awareness of what is going on there at all times, so you want a policy that has you covered.

After all, an investment property is supposed to be a money-maker, not a means to a large out-of-pocket claim.

If you need help insuring an investment or secondary property, contact your insurance agent here at Berry Insurance. 

While you’re at it, it is probably a great time to thoroughly review all of your personal insurance policies. Buying a new property is a big life change and you’ll want to make sure your coverage is up to par and you are adequately protected.

If you're looking to save money on your investment property insurance, check out our article on the benefits of insuring your primary home and investment property with the same insurance provider.