Insurance 101 for Real Estate Investors

As a Real Estate Investor having the right insurance policies in place is critical for protecting both your business and your assets.  Knowing which lines of coverage you need comes down to fully understanding your exposure.

The phrase “Real Estate Investor” can mean so many things these days.  From wholesaler, to hedge fund manager, and all of the niches in between.  While they all share the same industry, their risk exposures will likely vary in many ways.

Let’s take a look at some common coverages to determine what type of financial losses they are designed to protect you from, and some details you should be aware of.

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Workers Compensation

Workers compensation policies provide coverage for medical bills and lost wages when someone is injured while working for you.  Claims can arise from both direct and indirect labor.

A common misconception is that if you hire an insured subcontractor you have little to worry about with regards to injuries to their employees.  There are a number of scenarios though where you would need your own comp policy to step up and provide coverage for your subcontractors employee.

Any time you have downstream labor there is potential for a work related injury claim to occur.  There should always be a workers comp policy in place to protect you and your business whether work is being performed by employees, uninsured subcontractors, or even insured subcontractors.

General Liability

There is a fair amount of confusion as to what general liability policies actually cover.  Property damage, personal injury, and bodily injury to others as a result of your operations or advertising are covered by your general liability policy.

Losses arising from, or related to, employee/subcontractor injuries, auto accidents, illegal or intentional acts, professional errors and omissions, and damages to your own property are usually not covered by your general liability policy.

For real estate investors it is important to know that the general liability policy primarily covers the physical job site, but many financial loss claims associated with things like errors and omissions would be covered by only professional liability coverage.

Professional Liability

In order to have protection for financial losses arising from things like professional negligence, errant documentation, faulty installations, and even bad advice; it is imperative to have professional liability coverage in place.

In the event of a claim, which would likely be the result of a civil suit being filed against you, the initial function of the professional liability policy is to provide legal defense.  Just consider your attorneys hourly rate to defend you and this policy starts making a whole to of sense.

Many times this coverage can be packaged with your general liability policy, which is a great way to save on premiums.

Commercial Auto

Auto Liability is pretty straight forward…or is it?  As with all lines of insurance, there are some things you need to know to be sure you are properly protected.

For instance:

  1. Using a personal auto for work purposes, with a personal auto policy covering it, can result in a claim being denied.
  2. Commercial auto policies can be written under forms which cover any vehicle being used in your business or only specifically scheduled vehicles.
  3. Employees using their personal vehicles will need to be covered as non-owned autos, and rented vehicles need to be covered as hired autos.

There is more super exciting stuff, and I’d be happy to dig into the deets with you.  But, if we are going to keep this thing under what might be considered a short novel we’re going to have to keep it moving.   

Commercial Property

Each real estate investor is going to have different requirements when it comes to property coverage.  The important thing to consider here is there is more to cover than just buildings.

Obviously residential properties need to be covered by homeowners insurance or a builders risk depending on ownership and timeline.  And, commercial buildings should be protected by a commercial property policy.

Have you accumulated tools and equipment?  Do you have materials you are purchasing and staging for a remodel?   If you own something and want to be reimbursed should it be stolen, damaged, or destroyed it needs to be scheduled on a property policy.

Umbrella / Excess

As the name suggest, excess and umbrella coverages provide another layer of financial protection for all underlying policies scheduled under them.

Umbrellas extend the amount of coverage the business has for each underlying line of coverage by the coverage limit of the excess/umbrella policy.  They also generally extend the limits for legal defense on the underlying policies.

In order to understand your specific risk profile you will need to dig into the details of your operation with your insurance agent.

2022-05-23T16:58:22+00:00 Uncategorized|0 Comments