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What Kind of Insurance Do I Need on My Rental Property? - YouTube
Channel: Grace Property Management & Real Estate
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- Hi, I'm Mark Cunningham
with Grace Management.
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Unfortunately this week we had
to make a very difficult call
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to an owner.
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We had to make that rare call
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where we told an owner that his property
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had actually caught on fire this week,
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through no fault of anybody's
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and the city has actually
condemned the property
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at this point in time.
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Now that's a rare thing,
very rarely happens,
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but that brings up the
idea of proper insurance
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on your property.
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If you own rental
property, it is imperative
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that you have proper insurance
in place on your property.
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Now, there's two types of insurance
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you need to make sure you have.
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Number one is simply a landlord's policy.
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That's as simple as picking up the phone,
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calling your insurance company,
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telling them you have a rental property
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and you wanna place a landlord's
policy on your property.
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By the way, if you own
a property you live at,
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your principle residence,
and you're converting that
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to rental property, it's very important
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that you tell your
property insurance company
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that you're converting the property
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from a principle residence
to a rental property,
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and they will convert your policy
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to a homeowners policy,
to a landlord's policy.
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Very important they do that
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to make sure that you have
proper coverage in place.
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Now under a landlord's policy,
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that's gonna cover you for typical things
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that you may incur as a landlord.
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It's gonna give you some
liability protection,
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it's gonna cover the
property and the missing rent
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if something happens to the property.
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So let's say the worst case happens
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and let's say your property
does catch on fire,
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and it does burn and it's
gonna take six months
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for the insurance company
to rebuild that property.
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Well while it's sitting
vacant, who's paying the rent?
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There's nobody living in your property.
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Most policies that are landlord's policy
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have a built-in part of the policy
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that will pay your rent, your missing rent
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during that time that
the property's vacant.
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So there's a loss of rent coverage.
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What you oughta make sure you
ask your insurance company
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is how long is that duration
of rent coverage for,
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number one, and number two,
if my property is vacant
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for an extended period of
time, will that coverage
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of lost rents terminate.
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Here's why that's important.
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A number of years ago,
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the rental market was
very, very poor in Denver.
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We had a property that sat
vacant for about three months.
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The owner took about a month to fix it up,
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it'd been advertised for about a month,
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so we're approaching month
three of the vacant property.
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Well during that period of time,
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towards the end of month
three it was vandalized
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and what that owner
found out unfortunately,
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is that his insurance did not even cover
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what happened because his insurance lapsed
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because insurance will stop
if your property's just vacant
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for too long.
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So find out from your insurance company
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if there's any lapse in coverage
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if the property's just vacant
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for an extended period of time.
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Most policies we've seen have anywhere
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from a 60- to 90-day policy
term during that time.
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So if your property's
more than 90 days vacant,
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you may be in danger of
having your policy lapse.
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But a landlord's policy will cover you
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for the general things
that you could incur
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on your property.
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The second type of policy we recommend
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is an umbrella policy.
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This would cover those
worst case scenarios
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in the unfortunate event
if a claim happened
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and the amount of that claim was greater
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than your landlord's policy.
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Who pays that?
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What's gonna happen?
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If that worst case scenario happens,
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a tenant slips and falls
and really hurts themselves
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and sues you and it exceeds
your landlord's policy,
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an umbrella policy will
kick in and cover you.
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I have some rental properties,
I have a $2 million
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umbrella policy for me.
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That's what we recommend.
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At a minimum, bare minimum,
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you want a $500,000 umbrella policy.
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To go to a full million
is that much money more,
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and to go to two million, again,
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is not that big of a
step up in a cost to you
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as an investor.
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So go for the $2 million,
it doesn't cost you
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but a couple hundred bucks a year
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to have $2 million of
additional insurance.
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It's rare for claims to
happen on properties.
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These are only the worst scenarios,
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but in the unlikely unfortunate event,
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if that worst case scenario happens,
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it's so good to know
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you've got an insurance policy in place.
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If you've got questions, let us know,
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but most insurance companies
cover landlord's policies,
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most insurance companies
cover umbrella policies.
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Make sure you're working with one of those
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with your property.
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Thank you.
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