As a rental property investor, you need to have a working knowledge of many different subjects. You may not have to become an expert, but it is good to have a basic understanding when it comes to roofing, landscaping, plumbing, electrical, HVAC, taxes, insurance, and of course, the Arizona Landlord-Tenant Act. While a really great property manager can be helpful, most experienced investors pride themselves in understanding the basics. When your property manager asks you to make a decision on something, they will expect for you to know and understand the information that will help you make the best decision.
One topic that is a constant challenge for both investor-owners and property managers, is insurance. Most investors and property managers have some knowledge and can make certain decisions based on basic information. But unfortunately, too many investors and property managers are only interested in “checking off” insurance on their YES / NO to-do list. They are totally satisfied when they can say “Yes, we’ve got that!” They never look further and do not check on coverage amounts or features. Then, when something bad happens, they blame someone else because an important coverage was never purchased or the coverage amount was too little.
These are the same investors and property managers who look at a competitive proposal for insurance from a new company, and simply say “My current insurance costs less than that. I’m not interested!” Cost is the only factor that they consider.
My objective here is not to make you an insurance expert by reading a few simple paragraphs, but here is a short list of things to check on when you are evaluating your own insurance policy or just comparing it to a proposal from a different insurance resource.
- Liability Limits – Lawsuits are trending up, not down. Your policy should provide a minimum of $1 million per occurrence – $2 million per occurrence, if available. Do not be misled by “aggregate limit” numbers. This sets a maximum limit on how much your insurance company will pay out for multiple claims during a policy year.
- Building Coverage – This number has nothing to do with purchase price or market value. This should be the cost for a licensed contractor to repair or rebuild the entire building. Wild fires and hurricanes have caused an abrupt spike in the cost of construction materials, meaning it suddenly costs more to rebuild your rental property. This is an excellent time to ask your insurance agent to double check the building coverage amount on your insurance policies.
- Does your policy have:
- Building Code Coverage – without this, you must pay for changes required by law
- Replacement Cost – eliminates depreciation when a claim is paid
- EXTRA Replacement Cost – “bonus” building coverage to cover a larger claim
- Actual Cash Value (ACV) – not what it seems; this means depreciation is applied to a claim settlement; you do not want this!!
- Automatic extension of coverage to your property manager
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CLARK SANCHEZ has been an Arizona insurance agent for over 38 years and has been a Vendor-Affiliate with AZREIA for over 13 years. You can contact Clark if you have any insurance related questions at email@example.com or (602) 803-2179