Before Christmas last year, one of our properties caught on fire due to an electrical problem. The house was listed for sale at the time. Fortunately, the damage was isolated on the first floor and did not impact the entire house. Unfortunately, the borrower had allowed the property insurance to lapse and at the time of the fire the property was not protected by insurance. A costly mistake that could surpass $60,000.00.
Imagine if an entire house and its contents are burned down. The cost of the mistake will be over $1M. The repair and replacement costs for the average real estate property in our market are substantial. Property insurance gives compensation for that loss, so that your financial condition remains protected.
Why we need property insurance?
· Property coverage. If the property and/or any attached structures, such as a garage or deck, are damaged by a covered accident, property coverage takes care of repairs or replacement. The amount of coverage is usually calculated by the square footage and replacement cost. Not necessarily the market value.
· Other structures coverage. Other structures coverage helps pay for repairs or replacement for detached structures such as a fence or shed, if they are damaged or destroyed.
· Personal property coverage. Personal property coverage helps pay to replace certain belongings, such as furniture and electronics.
· Personal liability coverage. Liability coverage may help pay for related repair costs and legal fees, in addition to helping with medical bills, should you or a family member be found legally responsible for accidentally damaging someone else's property or injuring someone.
· Guest medical protection. If a visitor is accidentally injured at the property, the policy's guest medical protection helps pay for their resulting medical bills.
· Additional living expenses coverage. Homeowners insurance may even cover for temporary living costs, such as hotel bills, should the property become uninhabitable. We encourage our borrowers to be diligent with their insurance policy expiration dates as to avoid being caught without appropriate insurance protection in times like this. Should any problems happen, and you incur losses, the insurance company will produce the appropriate remedy.
Keep financial disturbances away by always making sure to renew your policies and keep them current.
Other issues include using regular homeowners insurance for specialized uses. For example if the house is vacant for an extended period, that requires a special rider on the property (extra cost if you can get it). Also, if the fire is the fault of a non-insured contractor, it may not be covered either. These kinds of "gotchas" frequently come into play when a property is being flipped for profit. There are other little-known insurance issues that can come into play when flipping a house that might cause a standard homeowners policy to not pay out. Bottom line.. if you buy a standard homeowners policy for a property that you intend to flip, don't make the mistake of thinking you ar…