In this article, I will cover insurance facts and benefits of including liability insurance as a part of your total real estate investment plan. Learning how to protect yourself and your property is imperative.
The type of insurance coverage you purchase will vary according to your needs. Here is a look at categories you should know about so you can evaluate the diverse ways liability policies can protect your investments.
- Protection of real estate assets
- Financial coverage protection in the event of a formal lawsuit
- Third party claims against you or your entities
- Any financial liability over your standard policy limits
- Attorney and court expenses you may incur over your basic property insurance instrument regardless of whether you win or lose your case
Types of Insurance Coverage for Real Estate Investors
Starting with the basics, you should secure standard property insurance policies for any property you own. These policies should cover losses from fire, water and wind at a minimum. Depending on the area in which you live, you may also want to obtain flood, hurricane, earthquake or other specialty coverage as well.
Unfortunately, injuries can occur even if your property is in prime condition and every safety precaution has been taken. For this reason, you’ll want to purchase a liability policy to protect yourself from lawsuits. Construction sites are of special concern since curious passersby are likely to wander onto the property. It is important to ensure properties are as safe as possible and inaccessible when the workday is over, but beyond that a liability policy could keep you from losing your shirt should injury occur. Liability coverage can be tailored to your unique needs, so there is no excuse for not protecting yourself.
Investing in fix and flips involves collaborating with tradesmen, day laborers, construction equipment operators, mechanical and electrical contractors, roofers, various installers and building material deliverers, often to an unoccupied property. You’ll want to ensure you have jobsite insurance coverage in the event items are damaged or stolen. In addition, it is essential to ask all contractors that work on your property to provide you with proof of liability insurance coverage. Make sure to verify that the policy covers their workers, or anyone injured due to their negligence.
Contractors Lien of Waiver
A lien waiver is a document provided by those working on a jobsite, such as contractor, subcontractor, materials supplier, etc., acknowledging receipt of payment and waiving any further lien rights to the property. This protects you in the event one of these parties, for whatever reason, demands further payment after the account has been settled in full. Each entity should provide you with a lien waiver at the time payment is made.
Property Title Insurance
According to the National Association of Insurance Commissioners – Center for Insurance Policy Research, ‘Title Insurance can help provide the home buyer and/or the mortgage lender necessary protection against losses resulting from unknown defects in the title to your property that occur prior to the closing of a real estate transaction.’
While running a title search should expose any issues with the title of a property, that is not always the case. Having title insurance could give you piece of mind that the title to a potential property purchase is clear and free of any defect. If that turns out not to be the case, the title insurance should protect you from incurring costs to clear the title, which could be substantial. Since purchasing title insurance is fairly inexpensive, it far outweighs the potential financial risks of not having it when purchasing properties.
Flipping properties to wholesale buyers does not require title insurance if you are assigning the property to a buyer, and you don’t take possession. Always have a specific option period in your contract, so you don’t end up inadvertently purchasing a property you did not intend to buy.
In our Real Estate Foundations class, we encourage our students to add an insurance agent or broker as one of their team members. They can be a valuable asset should questions or problems arise concerning a potential deal or real estate investment property.
They say experience is the best teacher, but that doesn’t mean you should acquire that experience from the school of hard knocks. The team of instructors at OTA Real Estate has over 200 years of collective real estate experience between them. In addition, the continuous learning and support available, along with the resources offered are designed to help students gain an advantage in the competitive real estate market. Sign up for our free real estate event to learn more.