Real Estate Investor Insurance Policies: What You Need to Know
Mark Gannaway is the founder and CEO of Arcana Insurance Services, LP, an insurance brokerage for lending institutions, real estate investors, and other specialty sectors. When he started Arcana in 2005, he’d already had executive roles in multiple agencies and brokerages. His 30-plus years of expertise in underwriting, risk evaluation, voluntary and involuntary insurance products, and loan servicing has helped thousands of real estate investors get the insurance coverage they need, when they need it.
In fact, when I started investing in real estate years ago, Mark’s company was the most recommended and the first one that I went to. Since then, I haven’t really had to think about real estate investor insurance policies. I have the coverage I need with a broker I trust. But what about new investors researching policies for the first time? What do they need to know in order to choose wisely? I asked Mark if he would share some of his industry insights over coffee.
What You Need to Know About Real Estate Investor Insurance Policies
What some real estate investors learn the hard way is that getting the right insurance policy starts with getting the right insurance broker. To do that, you’ve got to look under the hood and ask questions about what’s there. Not every company is reputable and not every broker knows what you need. Mark explains.
Always look at experience and area of expertise because most brokers either focus on personal lines or commercial insurance. Some, like myself, focus on working with investors and landlords and property managers all over the country. I’d be looking for someone who represents a good company and understands the industry.
In reviewing brokerages and the policies they provide, Mark also urged against using pricing as the primary guideline. Because property insurance is viewed as a commodity, many new investors think it’s an area where they can reduce costs and, thus, increase profits. “They buy insurance at the cheapest price,” Mark commented, “and that’s a short-term decision.” So when a claim isn’t paid or paid out properly, it fast becomes a decision the investor regrets.
Getting the Right Policy
You also don’t want to regret buying the wrong type of insurance, especially when investing in single-family residences–something I, and many other real estate investors, do. There is a difference between a homeowner policy and an investor, or landlord, policy. Not knowing that difference can cost you. Simply put, a homeowner policy covers the contents of the house. An investor policy, on the other hand, covers the structure itself. But another distinction is worth noting: liability coverage. Whereas a homeowner policy comes with broad liability coverage, it needs to be added to an investor policy, especially during renovation and even if the contractor is insured, according to Mark.
Investors will select a contractor to do a small remodeling job and don’t investigate to ensure he has a contractor’s liability policy in force. One of biggest exposures investors have is that they don’t verify that a contractor or subcontractor has workers’ compensation insurance. If a contractor or one of his workers gets injured at the investor’s worksite, the investor could be sued.
In addition, if you have more than one investment property, Mark recommends a master policy that covers the entire portfolio: “The benefit is leverage. The more premium you have with an insurance company, the more leverage you have.” He adds that you’ll also see discounts on your rates.
What if you have a property that’s difficult to insure? You can still find coverage in the private market. Mark says there are very few reasons to rely on a state’s Fair Access to Insurance Requirements (FAIR) plan, and those reasons tend to center on bad business practices by the investor rather than on the investment he’s trying to insure.
Step One: Get the Right Broker
The insights Mark shared reminded me of how critical it is to have professionals like him on hand to help with important business decisions. Knowing how to protect your real estate investments, and with whom, is mission-critical. As an independently owned and operated HomeVestors® franchisee and Development Agent, pros like Mark are just a phone call away.
So, before wrapping things up, I asked Mark if he had any parting words for the investors I mentor or anyone else thinking about coming on board. This is what he told me:
With HomeVestors® franchisees and all the coverage we write for them, they get a lot of leverage. If you are a brand new franchisee with HomeVestors, immediately when you buy that first house and insure it through their program, you get tremendous discounts on your pricing. You also get a lower deductible and great liability coverage–$1 million per location of liability. So, there’s a lot of good things that you can get by being a franchisee with HomeVestors.
I couldn’t agree more. HomeVestors’® franchisees are able to minimize their risks by maximizing their access to some of the best professionals around. Growing my portfolio with the HomeVestors team, and insuring it with the right policies in place, are two of the best business decisions I’ve made.
If you’d like to add more protection for your real estate investing business, contact HomeVestors today.
Each franchise office is independently owned and operated.