Fires and floods and earthquakes and landslides show just how unpredictable Mother Nature can be.
Recent natural disasters have forced real estate investors to stop and think about what protection they have for their properties. This of course includes insurance, but it is much more than that.
What is disaster insurance?
Disaster insurance, or disaster insurance, protects real estate property against natural disasters and sometimes man-made events, such as riots, terrorism or explosions.
Although these disasters are rare, they can cost a considerable amount, which is why homeowners and property investors should cover themselves.
How does natural disaster insurance work?
You may be wondering why you need disaster insurance if you already have homeowners insurance. Disaster insurance covers what homeowners insurance does not. Homeowners policies only cover so-called hazards. If a natural disaster damages your property, but your homeowner’s insurance does not explicitly name such a disaster or loss, the costs are not covered.
Often, even the “all-danger” policy does not cover some disasters. Typically, these insurance policies cover losses due to earthquakes, mudslides, pollution or other man-made disasters.
More about insurance from BiggerPockets
What types of disaster insurance are available?
Disaster insurance varies from policy to policy and from insurance company to insurance company, so be sure to know the exact details of what you are looking for. Some insurance is damaged by various natural disasters and man-made events. Other insurance specialties, such as those that only cover flood damage from hurricanes or tornadoes. It is not uncommon to buy separate insurance for floods, volcanoes or earthquakes.
Flood insurance is the most popular and often needed by donors if the property is at risk of flooding. Other types of disaster insurance may be required depending on local risks, such as earthquake coverage in California. However, with floods and other types of insurance, there are warnings for coverage that you should be aware of.
- Find out if your policy covers your property or your personal belongings or both.
- Understand what kind of damage will be covered by the policy.
- Ask about the initial waiting time before coverage begins; Flood insurance usually has a waiting period of 30 days.
Thinking outside of insurance: Other ways to protect your property
This first step is somewhat obvious, but when you are purchasing a property, it is important to assess the risk of damage to your potential property. Getting a Comprehensive Loss Underwriting Exchange (CLUE) report is not a bad idea as it shows a claim history of the home you are interested in buying. These reports show that previous claims will affect your insurance rates because your insurance rates are based in part on the history of the property.
As part of your proper perseverance you should evaluate whether a property is in floodplain. Areas donors finance assets when they need flood insurance in areas known to be at risk for flooding. But did you know that most of the property in Houston, Texas was flooded by Hurricane Irma No. In flood prone areas, and so they had no flood insurance?
That said, it’s a good idea to start with a map of the Fema flood zone.
In addition to flooding, ask yourself if the particular geography of where you are shopping is an additional risk. Is it in an area with a history of earthquakes, tornadoes, or fires? Even so, owning one is still beyond the reach of the average person. However, these are the risk factors you should consider. Another tip is to look at the trees on the property to make sure they don’t fall.
Also consider how weather-related risks increase or decrease. Is the accommodation improved? Are the property’s heating and cooling systems downstairs or upstairs? Hurricane straps were used? Are the materials fire resistant? Such concerns to consider the subject of investigation.
Ready to build your investment empire?
Think of us as your personal trainers. From a detailed breakdown of real-world contracts to one coaching session after another and a warm, welcoming community, host Ashley Kehr and Tony J. Robinson bring guests a wide range of “fresh” questions about you but may be afraid to ask.
Homeowners insurance and reserves
In most states, landlords are not allowed to insure the contents of their property. Instead, this responsibility falls on the tenants and is often required as part of the lease terms. For real estate investors, this is responsible for insuring their homeowners and possibly flood insurance.
If you live in a hurricane-prone area, the policy of your homeowners may be damaged by hurricane winds but not flood damage. Hurricane coverage usually requires more discounts than other types of losses for non-deductibles; Earthquake insurance is also known for high deductions.
That said, not all policies are created equal, and there are no one-size-fits-all insurance policies.
Lee Rogers, president of RealProtect, advises your insurance agent to ask these key questions:
- What is your deductible? Does it apply to property or events?
- Any danger covered? Many policies provide broad or basic coverage. The risks are limited to cover any kind of damage. Under a special or “all risk” form, you are covered unless it is specifically excluded. Please note that floods and earthquakes are general exclusions.
- Will you receive payment based on replacement cost or actual cash value? If you have a replacement cost, there is no underestimation when it comes to settling your losses.
- Do you have a currency insurance clause? If you’re not sure how currency insurance works in a property insurance policy, it’s important to find out.
- How much coverage do you have in place? Is the amount of coverage you have in your place enough to repair or rebuild?
- What is the disadvantage of your rental income coverage? Many investors face a loss of income in the event of a claim. If you have a covered insurance loss, do you have enough loss of rental income coverage? Most insurers will cover you for 12 months of lost rental income when repairing or replacing your home.
Remember that flood damage is usually excluded in homeowners policy, so does it make sense to pay for flood insurance, especially if you own and free the property and don’t need it? Not necessarily. As mentioned above, you need to assess the risk to your property and the likelihood of the event happening.
If you decide to buy a property despite the weather-related risks, or if you now have a property that you want to better protect from natural disasters, you can take steps to reduce the risk of property damage through proper maintenance as well as new construction. Method
For example, after Hurricane Sandy swept off the east coast of the United States a few years ago, many residents rebuilt their property using a variety of methods. Many have built basements or garages on the first floor of their homes a few feet high.
Maybe it makes sense to move utilities like a hot water tank or HVAC unit from the basement to the first or second floor. There are more new construction methods that can help prevent roof damage in high winds.
Proper maintenance procedures that can help prevent damage include winter zero features, updating smoke detectors, and regular inspections.