Insurance types All Foreign US Real Estate Investors Need
Estimated reading time: 3 minutes
If you’re an active US real estate investor, then getting your property insured should be a top priority. Not only is it a requirement from most lenders, but taking out the right insurance policies could possibly save you from financial loss and even ruin down the road.
Let’s look at the four main types of insurance that every real estate investor needs.
1. Title Insurance
Title insurance is a form of insurance that protects both the buyer and the mortgage lender from potential losses due to problems with the property title. Most lenders will require real estate investors to purchase title insurance anytime you are buying, selling, or refinancing real estate.
Often, problems with the title aren’t caught until after the sale is finalized. There could be a lien on the property, or the deed could have been incorrectly filed. Without title insurance, all financial liability falls on your shoulders.
Title insurance is paid as a one-time lump sum payment when you close on the property, along with the closing costs and other fees. It covers things like liens, back taxes, encumbrances, and any other defects with the title.
2. Liability Insurance
Comprehensive liability insurance is one of the most important things real estate investors can have. This type of insurance protects you if someone is injured on your property.
Liability insurance is essential even if you don’t yet have any tenants. Otherwise, if an uninsured contractor hurts themselves on the job, you could be held financially liable. And all it takes is one lawsuit to devastate most businesses financially.
Liability insurance is typically paid monthly, and the total amount will depend on the level of coverage you need. It will cover bodily injury, property damage and will even pay for damage done by pets.
3. Homeowner’s Insurance
When you own a property, there’s always the risk of external or internal damage. For instance, your roof could be damaged in a hail storm, or there could be damage or loss of your possessions due to a break-in.
Homeowner’s insurance will cover damages to your property, furnishings, and any other assets within the property. It can also provide some liability coverage if there’s an accident, though it’s not a replacement for liability insurance.
You’ll pay your homeowner’s insurance every month. If you need to file a claim and it’s approved, you’ll have to pay an out-of-pocket deductible.
The insurance company then issues a check for the remaining amount. Every policy does come with a liability limit, which is the maximum amount of coverage you can receive.
4. Flood Insurance
Flood insurance covers damages and losses related to flooding. And there are two main types of flood insurance you can purchase:
- This policy is offered by the National Flood Insurance Program (NFIP). It’s available to anyone across the U.S. who lives in a flood plain. The policy is offered through a private insurance company, but FEMA sets the rates and terms.
- You can also purchase private flood insurance. These policies are sometimes more comprehensive than what the NFIP offers. A private plan may be a good idea if you live in an area that’s high-risk for flooding.
In general, homeowner’s insurance does not cover flooding, so it’s a must-have for all real estate investors. You’ll typically pay an annual premium for the insurance.
The Bottom Line
As a real estate investor, you need to make sure your property is covered if the unexpected happens. Hopefully, this article has given you a good starting point and helped you understand the type of coverage you need.
You can work with a private insurance company to determine your coverage and purchase your policies. However, keep in mind that your lender will occasionally offer more cost-effective policies.