Reducing Your Insurance Costs
Each investment property has its own risk level. Therefore, careful selection of your investment property should include a risk assessment or evaluation. Outlined below are some conditions that increase your insurance risks.
PROPERTY LOCATED IN A FLOOD PLAIN: Flood coverage is not normally available on residential properties, especially those that are located in flood prone areas. Is there a history of flooding in the area? What is the frequency and the scope of the flooding?
AGE OF DWELLING: This is a key risk selection factor because discounts are often applied to newer homes, along with surcharges applied to older homes; especially those homes where the roof or electrical, plumbing, and heating systems have not been updated. Without appropriate upgrading, certain coverage may not be available.
ENFORCEMENT OF BY-LAWS: This is a parallel issue to the age of the dwelling. If the proposed investment property’s services have not been upgraded, and it becomes damaged, the municipal building authority may require you to repair your dwelling using current building codes, which can include a complete upgrading of the electrical, plumbing, and heating systems. In some cases, necessary upgrades can also include sprinkler systems, parking, and glazing. Most policies exclude this coverage but there are a few insurers who do provide this coverage and again, it is worth the effort to find one that does provide it.
PAST CLAIMS HISTORY: A careful review of past claims for property losses may reveal a cyclical pattern of loss, such as water damage losses that may give rise to mould problems. Most policies exclude coverage for loss or damage that is caused by mould, rust, corrosion, wet or dry rot, fungi or spores, bacteria, condensation, acid rain or contamination.
FIRE PROTECTION: Insurance costs for dwellings are based on the level of fire protection responding within a defined area—the better the protection the lower the premium.
VACANCY: Vacancy is another risk element that impacts on the type and the level of insurance coverage that will be available, as well as the cost. Lack of occupancy due to property renovations or difficulties to find new tenants are of special concern to insurers. In most cases, coverage is not provided when a vacancy goes beyond 30 days. Note: In contrast, the REIN Investor Guard policy provides coverage up to 120 days—whatever the reason for vacancy! In addition, most insurers cancel vandalism and water damage coverage the moment the property becomes vacant. Once again, under the REIN Insurance Program, your buildings are covered against water damage and vandalism—while vacant!
MOULD & MILDEW: Pay particular attention to the possible existence of mould or mildew in the target property. In fact, loss or damage caused by rust, corrosion, wet or dry rot, fungi or spores, bacteria, condensation, acid rain, or contamination are excluded perils under all policies. Insurance policies are designed to cover disasters and accidents, but not cleaning and maintenance, which is the category into which mould falls into according to insurers. In addition, chronic mould problems are very costly to repair and there is always the potential for a liability claim where the tenant feels that they have experienced serious health problems related to mould or mildew in the rental dwelling. One exception is in cases where mould results from a current accident or disaster (such as bursting pipes). In such cases, repairs and eradication may be covered.