As you continue learning how to buy investment property, investment property insurance is a key ingredient to that formula. On the Outer Banks, your rental investment property will require several different types of policies your realtor will tell you about, and another they might not think to tell you about.
Your investment in rental property requires up to four different types of insurance policies for the house itself. These are homeowners, wind, flood and excess flood. The other policy to guard against a cataclysmic event in your house or property (think pool accident) is liability insurance. The last insurance policy which has arrived on the scene on the Outer Banks in recent years is Pollution Liability Insurance. Let's examine each of these to understand how they fit in.
The homeowner’s policy is the same as the policy you have on your primary residence. It protects against fire, theft, water (excluding floods) and other such events. It should also have a personal liability clause as well, but this is typically low. Wind damage will be specifically excluded from this policy. The homeowner’s policy will also cover loss of income from the house. So, if there is a fire or other reason that will not permit you to rent the home when you have bookings for the house, this policy should reimburse you for that loss under the loss of use clause. Of the four house related investment property insurance policies, this will be the second cheapest.
As you know, hurricanes threaten the Outer Banks from time to time, and so heavy winds are a threat. So, since the homeowner's policy does not cover wind damage, you will need to acquire a Wind Policy. On the Outer Banks, the North Carolina Joint Underwriting Association and North Carolina Insurance Underwriting Association (NCJUA-NCIUA) provide this coverage. It will be the most expensive policy you will have to buy, likely more than the others combined. It also will have a high deductible for a wind and hail storm and even higher if it is a named storm. This is a state funded program, and your only choice for this type of coverage.
Ok, so Hurricane Pete hits the Outer Banks and blows your roof off and then has a storm surge that floods your house, the wind will be covered by the Wind Policy and the flood will be covered by ... flood insurance. Now, believe it or not, you will want to look at two types of flood insurance. The base flood insurance policy only covers up to a set limit, currently $250,000. This policy will be the cheapest of the four policies at about $400 - $500. But note the policy limit!
Ok, let's think about that for a second. If your house gets hit by flooding waters, and only hits the first floor, maybe $250,000 will be fine. However, let’s be realistic. If your first floor is finished, plus all of the mechanicals and the flood water extends to other floors, then what do you do. Well, that is where you buy Excess Flood Insurance. This will cover from the $250,000 limit up to the full value of the house. This policy will cost you about the same as the homeowner’s policy. In addition, based on what flood zone you are determined to be in, your policy will be higher or lower based on the risk.
So these are the four insurance policies that will be bundled into your escrow account for your mortgage. Sometime, the cheap flood insurance is not bundled in.
A fairly recent new policy has appeared on the scene the past few years called Pollution Liability Insurance. This is to provide coverage should a renter become ill from your house due to mold or Legionnaires disease. This policy will be sponsored through your rental company, who will be happy to bill you (withdrawal from the money they owe you for the coming rental season) in February. This is about $100 - $200 per year, as they get a single policy for all of their houses and pass the cost on to you.
Although not thought of as investment property insurance, one more policy you may want to think about getting is a liability or umbrella policy. This policy covers you for lawsuits or other damages above and beyond your standard policies. You can also use this for excess liability coverage for automobile accidents, and so forth. This will allow you to secure insurance to protect against a multi-million dollar loss.
When looking for the right investment property insurance policies, you may want to consider finding an insurance agent to help look for alternative solutions. Below you will find some sources to help secure the insurance.