Insurance rates for rental properties can be divided into two parts, based on the classification of the rental properties themselves. It is important to understand the distinction first. Basically the number of units and use are the main factors affecting the classification.
Insurance for Rental Properties of 1 - 4 Units
Insuring buildings with 1 to 4 units entails less risk for carriers compared with insuring larger commercial properties of five units or more. Also some companies stop offering coverage for properties above certain numbers of stories (3 or 7 for example.)
Properties that are 4 or less units can be insured under a commercial policy. In certain circumstances, a dwelling fire policy (form of personal insurance) may also be offered for these properties. If the insured person occupies one of the units in property of 4 units or less, then a regular homeowners policy may be used to cover them. In this proper landlord liability coverage is needed to cover people with exposure to renting tenants. Properties of 4 unites or less may not qualify for any personal insurance (dwelling fire or homeowners insurance) if there is mix use then commercial coverage is necessary.
Insurance for Rental Properties Over 4 Units
Insurance coverage for rental properties over 4 units are subject to different underwriting guidelines. More scrutinized rules related to risk acceptability and pricing are used with these properties. More attention is given to age of the building and the safety measure used such as fire extinguishing systems; exit signs; safety of hallways and common areas; updates of the electrical, heat and plumbing systems; accessibility and safety of the parking area & stairs; etc. Buildings with commercial stores exposures undergo further scrutiny regarding types & activities of business operated in the commercial units and hours of operations.
Habitational Insurance Programs Coverages
Typical coverages in the habitational insurance programs include building coverage, liability coverage, and loss of rental income. Certain coverage may be critical to the property owner such as ordinance of law coverage. Replacement cost coverage is desirable if available (older buildings may not qualify with certain insurers.) Depending the location of the risk, replacement cost may range between $125 to $150 per square foot. Liability coverage offers protection for the owners against any lawsuits brought against them from tenants and the public. Bigger investment properties may require higher liability, in which case an umbrella policy may be necessary. Loss or rental income is important to provide for the loss of rental income in the event of loss, such as fire.
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