1. What am I required to do when my rental property is vacant, to ensure that my insurance will remain valid?
Your REIN Investor Guard insurance policy allows for the property to be vacant for a maximum of 120 days at which point the policy becomes void. A vacancy permit MUST be arranged to extend coverage beyond the 120 day period.
During any period of vacancy you must comply with the following conditions, otherwise the permission for vacancy and coverage shall be void.:
Insurance companies don’t like to insure older buildings that have not been updated in 4 major areas. They specifically worry about heating, electrical, plumbing and roofs.
Heating: The main worry is non-standard heating such as space heaters, wood or coal burning stoves and furnaces, fireplace inserts as primary heat, combination units, and kerosene heaters. Generally any forced air, gas, or oil fired furnace or electrical heat is okay, if the system has been recently inspected and serviced.
Electrical: One of the leading causes of fire results from faulty electrical systems. The primary causes are over-fusing, ‘handyman tinkering’, inadequate amperage to support the household requirements, and the combination of wiring materials and systems that are susceptible to overheating.
Heat is generated as electricity flows through electrical wiring. Problems arise from higher temperatures within the wiring system resulting from increased electrical flow. If there are too many appliances on one circuit, the wiring and electrical system will overheat, potentially causing a fire. The wiring must be capable of supporting the current flow required by household needs.
Most new homes are wired with 14 gauge copper wire equipped with circuit breakers and capable of delivering 200 AMP service. If you have one of the problem issues identified you may have problems obtaining insurance.
Plumbing: One of the most frequent and costly types of insurance claims is water damage from burst pipes, so plumbing is a main area of concern for insurance companies.
There are two main components for plumbing systems being water supply lines and drain/waste/vent pipes. For underwriting purposes we are more concerned with the supply lines. Recently constructed dwellings utilize copper or plastic plumbing lines. Galvanized steel piping was used, almost exclusively, until 1949. The main hazard associated with aged, galvanized steel plumbing systems is deterioration and rust. If your home is over 30 years old but has copper or plastic supply lines you should not have a problem obtaining insurance coverage.
Roof: Insurance is not a replacement for proper dwelling maintenance. If a roof is not maintained properly it could lead to damage to other parts of the building and/or contents. Asphalt shingles are the most common type of residential roof covering. Life expectancy of asphalt shingles varies from 15 to 20 years, depending on the thickness, weight, and installation. Other relatively common materials used in roof coverings include:
Your roof should have been replaced if your home is over 30 years of age, unless you have one of the more superior types.
Insurance is there to rebuild your building in the event of a claim. The limit of insurance you purchase has to be enough to cover this expense at today’s costs and you also have to allow for costs to remove the debris from the damaged structure. The amount of insurance you select has nothing to do with the homes purchase price or re-sale value.
Having the right amount of insurance coverage is very important. With a Replacement Cost policy you can only collect the face value if you rebuild the building. If there is not enough insurance in place to cover the full cost to rebuild, you will have to pay the difference yourself or else only receive a settlement based on the depreciated value of the original building. In most cases this would be far less than the amount of insurance you carry.
Penalties will be applied by any insurance company in the event of partial loss, such as a kitchen fire, when you are not insured to proper replacement value. A simple way to describe this penalty is if you are only insured for half the proper value, the insurance company will only pay half of the cost to make repairs and you will have to pay the difference yourself.
To avoid any unpleasant surprises, you should have the rebuilding cost (including demolition and debris removal) estimated and purchase your coverage accordingly. Make sure you also include the value of all detached sheds and garages. You could hire an appraiser, consult with a local builder or you could contact our office for help. We have an evaluation tool that can help guide you in deciding an appropriate amount of insurance, but ultimately it’s up to you to determine the amount of insurance to carry.
Guaranteed Replacement Cost: This coverage eliminates any penalties for being underinsured in the event of a partial claim and also ensures that you have unlimited coverage for rebuilding. With Guaranteed Replacement Cost coverage, your policy will pay the full cost of repair or replacement, even if the amount exceeds the limit of insurance purchased. It doesn’t get any better than this—automatically included for your peace of mind!
For some insurance shoppers, the cheapest price is the name of the game and admittedly, with some purchases the lowest price can still deliver good value. However, cheap insurance—like cheap medicine—is no guarantee that it will really protect us when we need it.
Buying insurance for your investment property should be balanced against your risk-comfort level. It is important, therefore, to:
Getting good value for your insurance dollar does not necessarily mean that your policy will cost more. In fact, a focus on value may cost you the same or even less than cheap insurance, while at the same time provide you with better coverage.
Insurance is a way to protect your future and it gives you peace of mind during the trip there. To spend a fixed amount each year to pay for your insurance will appear insignificant when your investment property suffers a loss due to accident or fire. Without insurance, most people never recover from a major loss.
So, buy wisely. And once again, it is critical to carefully select a broker who can assist you to make educated or well informed decisions. This will save you money now, and most importantly when you have to file a claim.