Whether your investor client is new to property flipping or a seasoned veteran, renovating a home comes with a unique set of risks, so it’s important they have the right insurance coverage. Keep reading to learn about the key components of insuring your clients’ renovation properties.
Dwelling Coverage
Protecting the physical structure against sudden and accidental physical damage is crucial. REInsurePro offers two dwelling coverage form options for your clients to choose from: Basic and Special. For locations undergoing renovations, we suggest that your investor client considers elements of the coverage that are most important to them, including covered perils, cot, their business model, or challenges they are more likely to face at a property undergoing renovation. Keeping in mind there are differences between Basic and Special Form, Basic is typically more cost-effective, while Special Form considers coverage for Theft and Water Damage. Read more about discussing Basic vs Special with investor clients here.
Premises Liability
As you know, it’s not just the physical structure that requires protection. As a property owner, your clients have certain legal responsibilities to ensure the safety of both invited and uninvited visitors on the premises. A Premises Liability policy offers your clients protection against liability claims that can arise from various incidents on their property, such as a guest slipping on an icy walkway and sustaining injury.
As mentioned, a delivery driver or even uninvited guests such as trespassers can be a liability risk, so it’s very important that your client is aware of what is covered by their Premises Liability and are comfortable with their coverage limits.
How much renovation property insurance coverage does my investor client need?
The coverage amount will depend on the purchase price and renovation budget but consider the following.
For locations under renovation, should a loss occur, the claims settlement cannot exceed the combined value of the purchase price and invested capital at the time of loss. So, let’s say a location is insured to $400,000, because the investor bought the property for $200,000 and they have a budget of $200,000 to complete renovations. If at the time of loss, the investor has only spent $250,000, the most they will be able to recover is $250,000 (dependent upon the selected policy coverage, loss settlement/settlement, and less the deductible).
With that stated, one benefit of our monthly reporting structure is that the investor can increase the amount of coverage as their invested capital (or budget) increases. This way, your investor client is less likely to overpay for coverage that they may not be able to benefit from.
What deductible is right for a property being renovated?
When discussing property deductibles with your client, ask them to consider the minimum claim they would have to turn in before it harms their business. Then, do as much as double that amount. If they would never file a $1,000 claim, they don’t need to carry a $500 deductible. Keep in mind, our liability coverage has no deductible.
