I work with a number of clients who own rental property; some are just starting out with their first property while others have been at it for years and own multiple units. Most people who are starting with their first rental property tend to insure them with the same company that insures their primary home and cars. Those that own multiples may continue to insure theirs in the same way, but is this the best way?
Rental property insurance can be purchased in two broad ways for those who own multiple rental properties. It can be insured with a personal lines insurance policy or with a commercial property insurance policy. Which approach is right for you depends on a number of factors.
Personal Lines Approach: Most insurance companies that write home and car insurance will also write rental property policies for their clients too. Those that do, provide this as a service to their individual clients, but there are usually three limitations to what they will do.
The first limitation is the type of rental property owned. Most companies will write a rental insurance policy on a single family home and a duplex. The number of companies that will write a triplex, four-plex, or larger multi-family policy on a personal lines policy diminishes with each unit that’s added.
The investment property usually must be owned in the individual’s name or in the names of the couple that owns them. Many will not write a policy if the individual, couple, or group of investors has created a legal entity such as a partnership, LLC, or corporation to own the property.
The other caveat usually concerns the number of properties a company will write. Some of the companies I’ve worked with will write a maximum of 2 or 4 rental properties, while others may write up to 8, 16, or 25. Each carrier is different and it’s important to know what they will write and how that impacts you as an investor.
The personal lines companies will have a different rating structure for primary homes than rental property. Some will have lower rates for investment property, others will have higher rates, so it’s important to compare rates with multiple companies. In addition, each property will have its own policy with its own start and end date. It can lead to quite a juggling act for someone with 6 or more properties to keep up with everything.
Commercial Lines Approach: Another way rental property insurance can be written for someone who owns multiple properties is with a commercial insurance policy. Commercial insurance policies can be written in the name of an individual, couple, or for a legal entity.
The commercial insurance companies will write singe family and many multi-family properties, however there are usually limitations here too. Most will write a duplex and triplex but may pass on a four-plex. Others will write up to a six-plex and small apartment buildings too. Knowing each insurance company’s limitations beforehand is better than after another property has been purchased.
Many commercial policies will write the individual properties on a single policy with a schedule of properties. This means as properties are purchased or sold, they are added to or removed from the schedule. It’s easier to administer one policy than 10. Pricing may be more or less competitive than a personal lines policy, however, commercial polies are usually packaged with higher liability limits. In many cases, they may provide better liability protection in the event the owner(s) is/are sued for negligence.
Which approach is right for you depends on all these factors, as well as, the overall coverage and pricing. If you own multiple properties, how have you insured them? Share what you’re doing, along with your questions and comments, with me in the comments section of our blog or on our Google+ and Facebook pages. I’d love to hear from you!