Ultimate Guide to Insurance for Real Estate Investors

Insurance is a critical part of protecting your real estate investments and for asset protection.

As a real estate investor, understanding the different types of coverage, how insurance policies work, and how to make informed decisions can save you from significant financial loss.

Below, we’ll dive into the essential aspects of insurance to help you safeguard your properties and investment strategy.

Penny-Wise Pound-Foolish

When it comes to insurance, don’t make the mistake of focusing only on the lowest rate. Sure, it’s tempting to save a few bucks, but cutting corners on coverage can leave you exposed to massive costs down the road. Unless you plan to essentially self-insure, meaning you’re ready to cover any major expenses out of pocket, you need to consider more than just the price tag.

Start by thinking about what you want out of your insurance policy.

What Do You Want Covered? – Are you only looking for basic coverage, or do you need something more comprehensive? Does your policy cover things like liability, loss of rental income, or damage from natural disasters?
What Are You Willing to Take On Yourself? – Are you comfortable handling minor repairs or issues, or do you want your insurance to cover as much as possible? The more you’re willing to handle yourself, the less coverage you might need—but that comes with risk.

The time to decide all of this is now, before something happens. If you wait until disaster strikes, it’s too late. And remember, if you have a loan on the property, insurance isn’t just protecting you—it’s protecting the lender too. They’ll usually require you to have adequate coverage. However, if your property is free and clear, you have the option to go without insurance, but that means you’re taking on all the risk.

In short, don’t be penny-wise and pound-foolish with your insurance. Make sure you’re covered for the things that matter most to you and your investments.

Insurance Tips

These are the key insurance tips we’re going to cover to help you protect your real estate investments effectively:

Develop Strong Relationship With Your Insurance Agent and Understand Your Coverage – Building a good relationship with your agent ensures you get the right coverage and advice.
Limit Claims Close to Deductible Amount – Avoid filing small claims that could raise your premiums or get your policy canceled.
Maximize Liability Coverage on Properties and Autos – Make sure your liability limits are high enough to protect you from large claims.
Umbrella Policy – An umbrella policy provides additional liability protection beyond your regular coverage.
Compare Premium/Deductible (Especially for Deal Analysis) – Finding the right balance between premium and deductible is crucial for managing costs.
Extra Coverages Like Sewer Backup, Loss Assessment Coverage, etc. – Consider adding specific coverages to protect against unique risks.
Replacement versus Actual Cash Value – Understand the difference between these two payout methods to ensure you’re covered properly.
Require Renter Policies From Your Tenants – Protect yourself by requiring tenants to have renter’s insurance for their belongings and liability.

Strong Relationships

Having strong relationships with key members of your real estate investing dream team, including your insurance agent, is essential. Your agent plays a critical role in making sure you have the right coverage both now and as your portfolio grows or your needs change.

They can help explain the different coverages available, what they cost, and what risks you’re taking by not having certain policies. They should also be able to walk you through the situations these policies cover and give you an idea of how likely those events are to happen.

Beyond setting up your policies, a good insurance agent can assist you when deciding whether to make a claim. They can help you understand the potential impact of filing a claim on your premiums or your ability to keep coverage.

When you do need to file a claim, having an agent you trust means they’ll guide you through the process and help ensure you get paid smoothly.

A strong relationship with your insurance agent isn’t just about policies—it’s about having someone who understands your real estate business. They should be proactive, keeping you informed about changes in the market or new risks that could affect your investments.

The right agent will help you navigate all of this, ensuring you’re always covered where it matters most.

Understanding the Business of Insurance

Imagine you wanted to start a business selling insurance. You’d go out, collect money from people, and promise that if a specific event happens—like their house burning down or someone getting injured on their property—you will pay a defined amount to cover the loss.

The money you collect from your customers is called premiums. The money you pay out when an event occurs is called claims.

To run an insurance business, you need to collect more in premiums than you pay out in claims. But that’s not enough. You also have to cover your operating expenses and make a profit—after all, why start the business otherwise?

You need to pay people to figure out how often these events happen and how much they’ll cost when they do. You’ll also need salespeople to bring in customers, claims handlers, CPAs to manage taxes, attorneys to draft policies, and more.

As the cost of covered events rises—like the cost to rebuild a house or the medical bills for an injury—the insurance company will need to raise premiums to stay profitable. If events like natural disasters or accidents start happening more frequently, they’ll need to adjust the premiums again.

Now, from the customer’s perspective, if you didn’t have insurance and your house burned down, you’d have to pay the full rebuild cost—possibly hundreds of thousands of dollars. But, with insurance, you might pay just $1,000 per year, and if your house happens to be the one that burns down, the insurance company will pay to rebuild it.

Let’s say the insurance company collects $300,000 in premiums from 300 customers, but one house burns down. They pay $200,000 to rebuild that house. Now, they only have $100,000 left to cover operating expenses and make a profit. If two houses burn down that year, the company might actually lose money.

For the customer, you’re essentially paying into a pool. If something bad happens, you hope to get more money out of the pool than you put in. Some customers won’t ever need to make a claim, and that’s great—it means nothing bad happened. Others will, and if that’s you, it’s bad that something happened, but good that you’ve got insurance to help cover the cost.

Captive vs Independent Insurance Agents

When choosing an insurance agent, it’s important to understand the difference between captive and independent agents.

Each type offers different benefits, so knowing which one works best for you can help ensure you get the right coverage.

Captive Agents – These agents work exclusively for one insurance company and can only sell that company’s policies.
Independent Agents – These agents work with multiple insurance companies and can offer you a range of policy options from different providers.

Pros and Cons of Captive Agents

Captive agents are often more knowledgeable about the products of the company they represent. They can offer you in-depth advice on the specific coverages available through that insurer.

However, their options are limited to what their company offers, which means you may not always get the best deal or the most suitable coverage for your real estate investments.

Captive agents are also incentivized to keep you within their company’s offerings, which could lead to higher costs or fewer choices if your insurance needs change.

Pros and Cons of Independent Agents

Independent agents, on the other hand, can shop around for you. Since they work with multiple insurers, they can compare different policies and find the one that best fits your needs as a real estate investor. This can save you both time and money, as they are not tied to any one company’s offerings.

The downside is that independent agents might not have the same depth of knowledge about specific products as captive agents do. Their focus is often spread across many different insurers, so they may not be able to provide the same level of detail about each policy.

For real estate investors, independent agents often offer the flexibility to find policies that better match your changing needs. But if you prefer to stick with one company for simplicity, a captive agent might be a better fit.

Insurance Policies Are Like Snowflakes

No two insurance policies are exactly alike. Each one is unique, and it’s important to carefully read and compare your policies because they are not standardized.

You can’t just shop by price alone. Different policies cover different things, and the fine print matters. One policy might seem cheaper, but it could leave you exposed in areas where another policy provides better coverage. The way they describe what’s covered can significantly impact what happens when you need to file a claim.

The way the insurance company handles claims also matters. You want to know how they respond when something goes wrong. Will they be easy to work with, or will they make the claims process difficult?

In short, the details of your policy are everything.

Make sure you understand exactly what you’re getting, and don’t assume all policies are the same just because they look similar on the surface. Each insurance policy is unique—just like snowflakes.

Read and Understand Your Policy

It’s crucial to read and fully understand your insurance policy so you know exactly what is and isn’t covered. Relying on assumptions can lead to unpleasant surprises if you ever need to make a claim.

You can—and probably should—ask your insurance agent for help. This is one of the major benefits of having a dedicated agent. They can walk you through the policy, explain any confusing terms, and help you understand your coverage.

If your agent can’t or won’t help you understand your policy, it might be time to reconsider if they belong on your dream team. You’ll need to weigh whether staying with a company that has a less-than-helpful agent is worth it, or if it makes sense to pay a little more for an agent who provides better service. Alternatively, you might find a different agent within the same company who’s more willing to assist.

If you’re trying to save money by going without an agent, keep in mind that you’ll need to take on the responsibilities an agent would normally handle. This means you’ll need to read and understand the policy yourself, as well as handle any issues that come up.

Beware of Jargon

Insurance companies often use their own language or jargon to describe coverage options. For example, you might see terms like “silver” or “gold” plans. These names can be misleading because they aren’t standardized—what one company calls a “gold plan” could be completely different from another company’s “gold plan.”

Be aware of these terms and don’t assume they mean the same thing across different insurers. Ask your agent to explain your policy in everyday language. You should understand exactly what’s covered without needing to interpret the company’s marketing language.

Take the time to dig into the true meaning behind terms like Platinum, Gold, Silver, or even Ultimate, Optimum, Select. These terms might sound impressive, but what matters is what’s actually included in the coverage. Always clarify the details before making a decision.

Should You Make a Claim?

Before rushing to file a claim, take a moment to weigh the short-term benefits against the potential long-term consequences. Filing a claim may seem like the obvious choice when something goes wrong, but it could lead to higher costs down the road.

What if your insurance company decides to cancel your policy or refuses to renew it? This could leave you scrambling to find a new insurer—one that might charge higher premiums or offer less favorable coverage.

Consider the broader impact of making claims. Not only could your rates increase for the policy in question, but it could also affect other policies you hold with the same company. Is it worth the risk for smaller claims, or should you save insurance for larger, more catastrophic events?

Ask yourself how you view insurance: Are you using it to file a claim for every minor issue? Or do you see it as a safety net for bigger, less frequent problems?

When thinking about your deductible, decide how much over that amount would justify a claim. Would you file a claim for just a penny over your deductible? Or would it need to be $500 over? Twice the amount? Three times the amount?

By reducing the frequency of claims, you can help keep your premiums low and maintain your ability to stay insured. Use insurance wisely to protect yourself in the long run.

Maximize Coverage

Maximizing your insurance coverage is essential for protecting your real estate investments from large, unexpected events. Here are some typical coverages you might see on a property and what they protect you from:

Property Coverage – Protects your building and structures from damage, such as fire, theft, or vandalism.
Liability Coverage – Protects you if someone is injured on your property and decides to sue.
Flood or Earthquake Coverage – Provides protection for natural disasters not included in standard policies.

Having sufficient coverage means that if something catastrophic happens, like a major lawsuit, your insurance can help cover the costs. Let’s walk through a detailed example to show how coverage, or lack of it, can impact your financial situation as a real estate investor.

Extreme Example: Balcony Collapse

Imagine you own a rental property with significant equity—let’s say you have $500,000 in equity between this property and others. During a gathering, the balcony collapses, injuring several people and tragically resulting in one fatality. The victims and their families file a lawsuit against you for negligence, with the total claims amounting to $2 million.

Now, let’s explore three scenarios: no insurance, under-insured, and adequately insured.

Scenario 1: No Insurance

In this case, you’ve chosen not to carry liability insurance. The lawsuit proceeds, and the court rules in favor of the plaintiffs, awarding them $2 million. Without insurance to cover this amount, you’re personally responsible for the full sum.

To pay the settlement, you may need to liquidate your properties, including the one with $500,000 in equity, as well as other personal assets. Your entire portfolio and financial future could be wiped out by this one event, leaving you financially devastated.

Scenario 2: Under-Insured

Now, let’s assume you have liability coverage, but only $500,000. After the accident, your insurance pays out the full $500,000, but you’re still responsible for the remaining $1.5 million.

In this situation, you’re still personally liable for the difference. Once again, you could be forced to sell off properties and assets to cover the shortfall. While the insurance helped reduce the amount, you’re still facing a massive financial burden that could leave you with little to no assets.

Scenario 3: Adequately Insured

In this scenario, you’ve maximized your liability coverage to $2 million. When the lawsuit occurs, your insurance covers the full amount of the claims, including medical bills and the fatality.

While the accident is tragic, your personal assets and real estate portfolio are protected. You won’t need to sell any properties or dip into personal savings to pay the settlement because your insurance fully covered the lawsuit.

Why Maximizing Liability Matters

As a real estate investor, it’s essential to maximize coverage—including liability coverage—to protect yourself from large, unexpected lawsuits or claims. In extreme situations like this, having adequate insurance ensures that you don’t risk losing everything you’ve worked for.

Umbrella Policy

An umbrella policy, also known as excess liability insurance, provides additional coverage beyond the limits of your standard property or auto insurance. It’s designed to protect you from major claims that exceed the limits of your primary policies, offering an extra layer of security as a real estate investor.

What Does an Umbrella Policy Cover?

An umbrella policy typically covers liability claims like bodily injury, property damage, and legal fees that arise from incidents on your property or through your personal actions. It kicks in when your other insurance policies—such as your property or auto insurance—reach their coverage limits. For real estate investors, this can provide peace of mind, especially when facing large claims.

How Does It Work?

To qualify for an umbrella policy, you’ll usually need certain minimum coverage levels on your other policies. For example, your liability coverage on your property or auto insurance must be at a certain level before an umbrella policy will apply. Once your regular insurance has paid out to its limit, the umbrella policy steps in to cover the remaining amount, up to the umbrella policy’s coverage limit.

Example of How an Umbrella Policy Works

Let’s revisit the earlier balcony collapse example. In that scenario, the total claims amount from the lawsuit was $2 million, but your property liability coverage was capped at $500,000.

If you had a $2 million umbrella policy in place, your property insurance would first pay out the $500,000, exhausting its coverage. Then, your umbrella policy would kick in and cover the remaining $1.5 million. Instead of being personally responsible for that amount, your umbrella policy protects your assets and investment portfolio.

Without this extra coverage, you’d face the risk of financial ruin, but with an umbrella policy, you have the protection to safeguard your real estate investments and personal wealth from extreme, unforeseen liabilities.

The Price of Protection: Understanding Umbrella Coverage

The cost of insurance is more than just an expense—it’s an investment in protecting your assets.

Take umbrella insurance, for example. For about $1,500 per year, you might get $4 million in coverage. This policy picks up where your auto and property policies leave off, providing additional liability protection.

What does that extra coverage typically include?

Lawsuit settlements from accidents in your covered home or properties.
Medical expenses or damages if a visitor is injured on your property.
Damages to others’ property, such as someone’s car or home.
Some defamation judgments, like if you’re sued for slander or libel.

But remember, not everything is covered. An umbrella policy does not typically cover business losses, contract disputes, personal belongings, or criminal/intentional acts.

The details of your policy matter, so it’s important to understand exactly what’s included and excluded.

Not Insuring for the Amount of Your Equity

A common misunderstanding among real estate investors is that you need umbrella insurance to cover the amount of equity you have in your properties. That’s not correct. The amount of your equity has little to do with how much insurance you need. What really matters is the amount of a potential claim that could be made against you.

Your umbrella policy isn’t meant to cover just the value of your properties—it’s designed to protect you from the total amount you could be sued for. If your liability coverage is too low, you’ll be responsible for paying anything above that amount out of pocket.

Example: Balcony Collapse Revisited

Let’s go back to the balcony collapse example. Suppose you have $500,000 in equity spread across your properties, and you believe that’s how much umbrella insurance you need. But after the accident, a lawsuit is filed for $2 million—well beyond your equity.

If you only had $500,000 in umbrella coverage, your insurance would pay that amount, but you’d still be responsible for the remaining $1.5 million. You might have to sell your properties, dip into personal savings, or even take on debt to cover the difference.

Now, imagine you had $2 million in umbrella coverage instead. In this case, your insurance would cover the entire lawsuit, and you wouldn’t have to worry about liquidating your assets or losing your investments.

Key Takeaway

The amount of umbrella insurance you need isn’t based on the equity in your properties. It’s based on how much you could potentially be sued for. Claims can easily exceed the value of your equity, so it’s important to insure for the worst-case scenario, not just for the value of what you own.

Compare Premium/Deductible

When comparing insurance policies, it’s important to understand that the relationship between the premium (the amount you pay regularly) and the deductible (the amount you pay out-of-pocket before insurance kicks in) is just one part of the equation. This is an over-simplification because other factors, like the details in your policy and how your insurance company handles claims, also play a huge role. Always read and fully understand your policy.

In general, the higher your deductible, the lower your premium will be. This is because a higher deductible means you’re willing to take on more of the cost if something happens, so the insurance company doesn’t need to charge you as much upfront.

Your deductible also serves as a way to discourage small, trivial claims. For example, if you have a $1,000 deductible and your property suffers $1,500 in damage, you’ll need to pay that first $1,000, and insurance will only cover the remaining $500. This means you won’t likely make claims for small amounts just over your deductible.

Now, what if your contractor offers to “waive” your deductible or suggests working a deal where you don’t have to pay it? That’s actually insurance fraud. It’s illegal because the deductible is part of your contract with the insurance company. Trying to avoid paying it is considered misrepresentation, and it could result in serious consequences for both you and the contractor. Always stick to the terms of your policy, and be wary of any offers to sidestep your deductible.

Extra Coverage

In addition to basic property and liability coverage, there are several extra coverages you should consider to fully protect your real estate investments. These additional policies can save you from unexpected costs that could otherwise eat into your profits.

Loss Assessment Coverage – Protects you if you’re part of a homeowners’ association (HOA) and are hit with a special assessment to cover damages to shared spaces or liability claims against the HOA.
Sewer Backup – Covers damage to your property caused by a sewer backup, which is often excluded from standard policies.
Service Line – Covers the repair or replacement of underground service lines, like water or gas lines, that you are responsible for.
Equipment Breakdown Coverage – Protects you from the cost of repairing or replacing essential systems like HVAC, boilers, and appliances that fail unexpectedly.
Flood Insurance – Provides protection for flood damage, which is typically not included in standard policies but can be essential for properties in flood-prone areas.

These extra coverages can help you avoid hefty repair bills or special assessments, ensuring your investment stays profitable even in the face of unforeseen problems.

Replacement Cost

When insuring your property, you’ll likely come across two options: Replacement Cost and Actual Cash Value. Understanding the difference between the two can significantly impact what happens if you need to make a claim.

Replacement Cost – This covers the full cost to rebuild your entire dwelling, and sometimes the roof is covered separately, especially in cases like hail or wind damage. With replacement cost coverage, you’re insured for what it would take to rebuild the property at today’s construction prices.
Actual Cash Value – This only covers the depreciated value of the property, meaning you’ll get less money because the property has aged and may not be worth as much as it was when it was first built.

Replacement cost policies usually come with higher premiums because you’ll receive significantly more money if you need to make a claim. However, you need to decide whether it’s worth paying more now in premiums for the potential of a larger payout later, or if you’re comfortable saving on premiums and covering more costs out of pocket should you ever need to rebuild or repair.

Replacement Cost: Dwelling

When choosing your insurance policy, you have several options for how much coverage you want to pay for.

While you’ll pay more for better coverage, it’s crucial to ensure you have enough protection, especially as the value of your property increases.

Many people set their home values when they first buy insurance and never revisit them with their agent.

In fast-appreciating markets, this can leave you woefully, painfully, and sadly under-insured if a claim arises before updating your coverage amounts.

Actual Cash Value vs. Extended and Guaranteed Replacement Costs

Actual Cash Value – This is the least expensive option, as it only covers the depreciated value of your property. For example, if your property has aged, your payout will reflect its decreased value—even if real estate prices have appreciated. The insurance company assumes the property is worth less due to its age, and your coverage amount decreases over time. While this option lowers your premiums, it also means you’ll receive significantly less money in the event of a claim, which may be only a fraction of the amount you’d need to fully rebuild. In fact, it may be less than what you owe on the property on your mortgage in some cases.
Extended Replacement Cost – This option adds extra coverage beyond your original policy limit, usually by 25%, 50%, or 100%. If your home is insured for $400,000 but the actual cost to rebuild has risen, an extended replacement cost policy could provide up to $800,000, depending on your selected coverage. You’ll pay more for this added protection, but it helps prevent being under-insured due to rising costs.
Guaranteed Replacement Cost – This is the most comprehensive and expensive option. It guarantees that your home will be rebuilt, no matter how much the costs have increased—even if they exceed your policy limits. This type of policy offers complete peace of mind, but it comes with higher premiums. Not all insurers offer guaranteed replacement cost, so you’ll need to check with your agent to see if it’s available.

By choosing the right level of coverage and regularly updating your policy with your agent, you can avoid the painful scenario of being under-insured when you need it most.

Replacement Cost: Roof

When it comes to roof claims, understanding how your insurance policy handles replacement costs is key. Your coverage will determine how much of the repair or replacement cost your insurance will pay, and what you’ll be responsible for.

Wind/Hail Deductibles

Your deductible for wind or hail damage may be set as either:

Flat Amount – Deductibles might be fixed at $1,000, $2,500, or $5,000.
Percentage of Dwelling Value – Some policies use a percentage of your property’s insured value. For example, if your home is insured for $400,000 and your deductible is 1%, you’d be responsible for $4,000 before insurance pays out.

Replacement Cost vs. Actual Cash Value

When it comes to replacing your roof, your insurance company will handle the claim based on whether you have replacement cost or actual cash value coverage.

Replacement Cost – This covers the full cost to replace your roof at today’s prices, regardless of its age or wear. It ensures that your insurance will pay for a brand-new roof, minus your deductible, without factoring in depreciation.
Actual Cash Value (ACV) – This covers the depreciated value of your roof. The payout is based on the roof’s current condition, accounting for wear and tear over the years. This means you’ll receive less than the cost to replace the roof, as the insurance company subtracts depreciation from the replacement cost.

Example: Actual Cash Value vs. Replacement Cost

Let’s say your roof originally cost $10,000 to install, but it’s been damaged by hail after 15 years of wear.

Without Replacement Cost (Actual Cash Value):

The roof has a 30-year lifespan, so at 15 years, it’s lost 50% of its value.
You have a 1% deductible on a $400,000 policy, which is $4,000.
The insurance company calculates the depreciated value of your roof at $5,000 (50% of its original value).
After subtracting your deductible, you’d receive $1,000 from the insurance company and have to cover $9,000 out of pocket to put a new roof on the property.

With Replacement Cost Coverage:

Your roof still costs $10,000 to replace.
With the same 1% deductible of $4,000, the insurance company would pay $6,000, leaving you to cover just the deductible.

Replacement of Undamaged Roofing and Siding

Some policies may include coverage to replace undamaged parts of your roof or siding so that everything matches after repairs. Without this coverage, your insurance company is only required to replace the damaged sections, which could lead to mismatched shingles or siding. Having this extra coverage ensures the entire roof or siding gets replaced for a consistent look.

Understanding whether you have replacement cost or actual cash value coverage is important when making claims. Replacement cost coverage ensures you get a brand-new roof with minimal out-of-pocket costs, while actual cash value leaves you covering much more.

Regularly review your policy and discuss with your agent to ensure you have the right protection.

Replacement Cost: Contents

When insuring an investment property, it’s essential to evaluate whether you need replacement cost coverage for the contents. While not all investors may require this, it can be a critical protection in certain cases.

Without replacement cost coverage, you’ll be responsible for replacing damaged or destroyed items out-of-pocket. This includes things like furniture, appliances, electronics, and kitchenware, which are often excluded from standard insurance policies unless you add specific coverage for them.

This type of coverage is particularly important if you have furnished rentals, vacation rentals (like VRBOs), or you’re a house hacker. In these situations, you’re typically providing furniture and other essentials for tenants or guests. If these items are damaged, the replacement costs can quickly become significant.

Replacement cost coverage ensures that if a covered event occurs, you’ll be reimbursed for the full cost to replace the contents at today’s prices—not their depreciated value. This is especially valuable for items like electronics or appliances, where the actual replacement cost may far exceed their depreciated value.

In summary, if your investment property includes valuable contents, opting for replacement cost coverage can protect you from the financial strain of replacing everything on your own if something happens.

Require Renter Policies from Tenants

Requiring your tenants to have a renter’s insurance policy is crucial for protecting both their belongings and your property. Your standard insurance policy typically covers the property itself but not the tenant’s personal property.

Imagine a kitchen fire occurs in one of your rentals, potentially due to an issue with the stove that you didn’t repair properly. The fire destroys the kitchen and smoke damages your tenant’s belongings—clothes, electronics, furniture, and more. While your insurance likely covers the cost of repairing the kitchen, it won’t cover your tenant’s personal belongings. Without renter’s insurance, they may expect you to replace their stuff, even if the fire wasn’t entirely your fault. This situation can get complicated, and if your tenant is suddenly faced with replacing everything, they might not have enough money left to pay rent.

For these reasons, requiring renter’s insurance not only protects your tenants but also ensures that you can collect rent on time, even if an incident occurs.

You should also ask tenants to get at least $500K in liability coverage, if possible. This helps protect both you and the tenant in case they’re responsible for an incident, like a guest getting injured on the property. It can prevent lawsuits or help pay for damages caused by the tenant, keeping you out of financial trouble.

Additionally, request to be named as an “Additional Insured” on the policy. This way, if the tenant causes damage, their insurance kicks in before yours. You’ll also be notified if they stop paying for their policy. Include this requirement in your lease agreement, making it clear that having renter’s insurance is mandatory. Tenants who fail to maintain coverage risk eviction, as it helps protect both parties involved.

Renter’s insurance typically covers the tenant’s personal belongings, such as furniture, electronics, and clothing, and is relatively affordable—usually costing tenants between $10 to $30 per month. Explain this requirement during the tenant application and lease signing process to avoid any confusion later.

Requiring renter’s insurance is a small step that can protect everyone involved.

Other Insurance

As a real estate investor, there are several additional types of insurance you should consider to protect your investments from various risks.

These policies can offer specialized coverage beyond your standard property insurance.

Private Mortgage Insurance (PMI) – Required if you have a high loan-to-value ratio. It protects the lender in case you default on your mortgage but is typically not beneficial to you directly.
Loss of Income Insurance – Also known as loss of rent. Covers lost rental income if your property becomes uninhabitable due to damage, ensuring your cash flow remains steady while repairs are being made. Your mortgage is expecting to be paid even if you’re unable to rent the property so this can help reduce your risk exposure.
Loss of Use/Additional Living Expenses – Not typically used for investment properties, but for owner-occupant properties this can provide you money to cover living expenses if the property is unable to be lived in.
Meth Insurance – Unusual policy, but it protects against the costs of cleaning up and repairing damage caused by methamphetamine production in rental properties, which can be extremely costly to remediate.
Flood Insurance – Provides coverage for flood-related damage, which is typically excluded from standard property insurance. Essential for properties in flood-prone areas.
Earthquake Insurance – Covers damage from earthquakes, which are usually excluded from regular property policies. Important if you own properties in earthquake-prone regions.
Hurricane Insurance – Provides coverage for damages caused by hurricanes. Often necessary in coastal areas, as wind and flood damage from hurricanes are usually not covered by standard policies. May be presented as separate windstorm and flood insurance.
Home Warranties – Protects major systems and appliances in your rental property, covering repairs or replacements of things like HVAC systems, plumbing, and electrical, which can help reduce unexpected maintenance costs.
Title Insurance – Protects you from title defects or legal issues with property ownership.
- Owner’s Extended Coverage – Offers broader protection than basic title insurance, covering additional risks like unrecorded liens or boundary disputes.
- Hold-Open Policies – Used when you plan to sell a property within a short time, allowing you to avoid paying for title insurance again when you sell.

These additional insurance options can provide valuable protection, safeguarding your investment from a range of potential risks.

Getting Insurance

Getting insurance is a key part of the process when you’re under contract to buy a property. Often, your real estate agent or lender will refer you to an insurance agent even before you make an offer and go under contract, so you’ll have someone ready when the time comes.

During your deal analysis, you’ll typically contact your referred insurance agent to get a sense of what insurance will cost for the types of properties you’re looking at. This helps ensure you have somewhat accurate estimated insurance costs for analyzing deals.

Once you’re under contract, you should call your insurance agent to set up coverage for the property and firm up your estimated numbers that you used for deal analysis.

If you find you can’t get insurance or the price is unreasonable, check your real estate contract. Some contracts allow you to object or even terminate the deal based on insurance issues, but this depends on the terms, so make sure to review the contract or consult with your real estate agent if needed.

If you can secure reasonable insurance, you’ll arrange for it to start on the day of closing and provide the policy to your lender. Lenders require insurance to protect their investment in case something happens to the property, like a fire or other covered damage.

If you’re financing the property, insurance is mandatory. However, if you’re paying in cash, you have the option to skip insurance, though doing so leaves you without protection for potential losses.

Final Insurance Tips

As you wrap up your insurance planning as a real estate investor, here are a few final tips to make sure you’re fully protected and getting the best coverage for your properties.

Update Insurance Company When the Loan Is Sold/Transferred – When your mortgage is sold or transferred to another lender, inform your insurance company. This avoids paying for insurance out of pocket and waiting for reimbursement from your escrow account.
Beware of Conflicts – Some insurance companies restrict certain dog breeds, like pit bulls, and city laws may also ban them. Even if a tenant claims an emotional support exemption, make sure you’re aware of potential conflicts with your insurance.
Disclose Tenants Running a Business on the Property – If your tenant is running a home-based business, it can increase your liability and potentially invalidate parts of your insurance if it’s not disclosed. Certain business activities, like client visits or using the property as a workspace, might not be covered by standard insurance policies. Always inform your insurance company if your tenant is running any type of business to ensure you have the right coverage. This protects you from potential gaps in liability or property damage claims that could arise from business operations.
Disclose Trampolines, Hot Tubs, Pools – If your property has high-risk features like trampolines, hot tubs, or pools, always disclose these to your agent. Not doing so could result in insufficient coverage or claims being denied.
Disclose If You’re Renting Part of Your Home – If you’re renting out part of the home you live in, such as house hacking, disclose this to your insurance company. Failing to do so can result in denied claims or insufficient coverage.
Bundle Policies for Discounts – Many insurers offer discounts for bundling multiple policies, such as combining property, auto, and umbrella policies under the same provider. This can help save on premiums while ensuring comprehensive coverage.

Following these tips will help you avoid costly mistakes and ensure your insurance policies provide the protection you need for your investments.