How To Properly Insure Your Real Estate Assets

ID-100273984Last week I opened up with a personal story about losing one of my real estate investment properties to a catastrophe. The last thing you want to gamble with is the real estate insurance policy on property worth several hundreds of thousands, or even millions, of dollars. It’s far too easy to become the loser in that game.

After going through my own catastrophe with a multi-family building that I own, here are some words of advice I would pass on to fellow real estate investors that want to avoid a worst-case scenario.

1. Hire An Expert

Make sure the person you are working with has experience in the type of real estate you’re acquiring or working in. You wouldn’t take your bicycle to an auto mechanic so you probably shouldn’t take your commercial building insurance needs to a person that generally does household insurance. It’s a very specific field so make sure the broker you are using is an expert.

When it comes to real estate insurance, it’s important that you have an expert working on your side that’s not directly affiliated with the insurance company. We have the Insurance Brokers Association of Canada and their mission is specifically to give piece of mind to those needing insurance by matching the right product with the right customer, regardless of which company that is.

2. Get Educated on What The Plan Actually Covers

Do a detailed analysis of the coverage and look to see whether or not it meets your needs if a catastrophe were to occur. There are so many different ways to look at real estate insurance and it’s all risk/cost related but you need to make sure it’s covering the primary concerns of your project.

3. Check Your Policy Regularly

Values of properties can change dramatically. Let’s say you purchased a multi-family building that was half-empty at a deal for $500K. You do some renovations, get some better tenants in, fill the building and now it’s worth a million dollars.

If you haven’t gone to work with your real estate insurance agent, you are going to be underinsured with your new valuation. You need to update your insurance broker anytime there’s a change in your real estate project to ensure your insurance is updated accordingly.

Like any insurance, if you don’t understand what you’re paying for, you probably have the wrong coverage. It’s imperative that you understand what you have and why you have it.

Real Estate Insurance: Reflecting On The Outcome

I found using an insurance broker to be a critical part of the process and true piece of mind as we knew that person was working for us and looking out for our best interests. The insurance company isn’t there to just write you a check the day of the catastrophe. They review every word of the policy to make sure you weren’t underinsured or over insured and that every single duck is in a row.

The insurance company is only interested in paying the amount of money they technically obligated to pay out. Even though you paid for insurance based on a specific expectation, if that isn’t based on the actual facts, it’s possible that you may have overpaid for real estate insurance and won’t be able to access those funds.

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