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Playing the Real Estate Insurance Game

You win when you get insurance and never use it

 

Fixer Upper HouseIf you have to go to a lender to finance your rental property, you have to go to an insurance company to get the property insured. Maybe this is why it’s hard to “win” at the real estate insurance game.

The whole point of any insurance, not just real estate insurance, is to get it and never use it. If you make a claim, you have to pay a deductible, and your future premiums will likely go up when you renew or switch carriers. If you don’t have insurance, besides the fact that you can’t get financing, should the unlikely catastrophe actually happen you will have a financial disaster as well. So, clearly you need it. But, needing it doesn’t always mean there are companies that will sell it to you.

Insurance is difficult to obtain (and often more costly) if you and your investment property has any of the following “red flags”:

  • You live more than 100km away from the property
  • The property has knob and tube wiring
  • The roof is older than 7 years
  • You have had a claim on any of your properties
  • The property is in poor condition
  • The plumbing has not been updated in the past 10 years or so.

If you have any of the above obstacles, you may have to search extensively to find an insurance company to cover you. In addition, you will pay a higher premium to be covered. So what can you do about it? It is not easy to deal with the above, but some of the things that have helped us include:

  • Fixing the electrical problems that were preventing the insurance companies from insuring it
  • Move in – living in your property makes it easier to get insurance
  • Insure your primary residence with the same company – this lowers your fees and reduces the obstacles to gaining insurance
  • Speak to local landlords and find out who they use for insurance
  • In BC, join ROMS (Rental Owners & Managers Society). Members can use their associations and get discounts on insurance, and there seems to be less restrictions on the property condition to get insured.
  • Keep trying – you will usually find an insurance company that will insure you but it won’t be cheap!

Insurance is a game that we have resolved ourselves to play with the idea that winning is getting a good rate on insurance for our properties and then never ever having to use it.

Published February 11, 2007

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