As an insurance agent, one of your duties involves assisting clients in making well-informed decisions about their coverage. For someone who is well-versed in insurance terminology, it can be difficult to define the differences between Basic and Special Form coverage in layman’s terms. But the coverage form that best fits your investor client’s properties may vary from location to location. And when clients understand the nuances of each form, they’re better equipped to make critical coverage decisions. 

Engaging in these conversations with your clients can also provide you with insights into their investment goals and strategies, ultimately allowing you to serve them and their portfolio more effectively. Use the outline below to help guide your clients through selecting the appropriate coverage form for each of their investments.  

What is a coverage form?

The term “coverage form” refers to a policy that outlines the inclusions or exclusions of property coverage provided by an insurance policy. While the three industry-wide coverage forms are Basic, Broad, and Special, REInsurePro only offers the Basic and Special Form options.  

• There’s around a 15 to 20 percent cost difference between each policy form. Ultimately, it is up to the investor to decide if the additional exclusions associated with the cheaper coverage form are worth the risk.  
• This decision should not be made on cost alone. Stress the importance of considering exclusions, appetite for risk, and cost differences when deciding between Basic or Special Form coverage.  

Special Form Coverage

The most comprehensive, and therefore, most expensive coverage form available. Special Form is considered “All-Risk” coverage.  

• Explain to your investor client that All-Risk simply means unless there are specific exclusions listed within their policy, coverage is afforded in the event of a loss.  
• Additionally, the burden of proof falls on the insurance company. This means that the insurance company must prove that the policy specifically excludes whatever peril caused the loss for coverage not to be afforded.  
• Inform your investor client that there are standard exclusions that come with every Special Form policy, some of which can be purchased as an endorsement or stand-alone policy. The following are standard exclusions, some of which can be bought back by endorsement: 
  • Mold & Fungus 
    • Some REInsurePro carriers include limited mold coverage up to $15,000. 
  • Wear & Tear 
  • Sewer & Drain Back-Up 
    • Limited coverage available through REInsurePro’s Tenant Protector Plan. 
  • Terrorism 
    • REInsurePro offers a private Terrorism alternative to TRIA for $1 per unit, per month. 
  • Earth Movement (including earthquakes and sinkholes) 
    • REInsurePro offers a supplemental policy for Earth Movement. 
  • Flood 
    • REInsurePro offers a private Flood option as well as NFIP. 
  • Intentional Tenant Damage 

*While other insurers often exclude Theft, REInsurePro’s Special Form does include coverage for that peril.  

Basic Form Coverage  

Basic is a cheaper and less comprehensive coverage form option.  

• With Basic Form, the burden of proof falls on the insured. In this case, the investor client carries the burden of proving that the loss was caused by an included peril.  
• Depending on the carrier, this coverage can save the investor client approximately 15 to 20 percent per year.  
• However, Basic Form comes with additional exclusions to those listed on Special Form. These additional exclusions are:  
  • Collapse 
  • Falling Objects 
  • Theft (Remind investor clients this coverage is for things they own, such as the air conditioning unit and the copper pipes in the wall- not their tenant’s belongings.) 
  • Weight of Ice, Sleet, or Snow 
  • Water Damage (Most known as coverage for frozen and burst pipes.) 

Broad Form Coverage

Broad Form coverage is the in-between form not often used by investors. The reason for this is that the cost savings are typically not enough for it to make sense to purchase. It mirrors Special Form with the exclusion of Theft. It typically saves investors 10% compared to a Special Form policy. For the additional 10%, it is a better option to purchase Special Form.  

Important Questions to Ask Your Investor Clients

Is the property in an area where Weight of Ice, Sleet, or Snow and Water Damage due to frozen pipes are considerable risks?  

• If not, Basic form might be a viable option.  

 

If the property is a flip project- Will the property still be in your possession when the temperatures get cold?  

• If not, Basic form might be a better option.  

 

Is the property vacant?  

• If the location is occupied, the threat of theft may be diminished as it most often occurs at vacant locations. 

 

Is the property undergoing renovations/flipping? 

• If yes, will there be enough owned materials and appliances at the location for carrying theft coverage to make sense? Inform your investor client that their policy does NOT cover general contractors’ tools and materials.  

 

As you know, there are many things to consider when making a choice between Basic and Special Form coverage. By outlining the nuances of each policy, you empower your clients to make informed decisions about their insurance coverage. Engaging in these conversations not only enhances your client relationships but also provides valuable insights into their investment goals, enabling you to serve them more effectively.