Helping You Sleep At Night

The phone ringing at 3:12 am is never good news and it wasn’t that morning either. I picked up the phone in my groggy state to hear the panic stricken voice of Laura, the tenant from my rental property tell me that the house was going up in flames. My mind was racing as I quickly got dressed and drove the ten minutes to the property. Sure enough I could see the smoke from blocks away and when I got there I stood numbly as the firefighters did their best to put out the blaze.

I had no words of comfort for Laura as we stood by helplessly watching everything she owned reduced to ashes and not being able to do anything about it. It was hours before the fire was extinguished and at the end of it there was nothing but rubble left. Laura went to stay with a friend and as I made my way home I knew that while her tenant insurance would replace her material needs, she had lost much of what was dear to her and could never be replaced. Insurance can only cover so much but at that moment I realized that if I had not properly insured my rental property I would be in a similar situation to hers.

As a savvy real estate investor I am used to sizing up a property quickly and knowing whether or not it is a good investment. With the property market going crazy in Alberta it was tempting to remove conditions on that property before I should have because I knew there were a dozen back up offers right on my heels. Thank goodness I didn’t. I sometimes have to remind myself that the conditions I initially put on a deal are there for a reason and need to be addressed before they are removed. The condition of adequate insurance coverage is one I could not afford to glaze over. It turned out to be troublesome to get the property insured but driving home that night I was glad I had taken the time to do it.

There are certain properties that are not insurable and you need to know that yours is not one of them. This is when your relationship with a good insurance agent comes into play. Be sure that you are dealing with someone who not only knows the insurance market but also the real estate market. Your investment needs will be different than your personal insurance needs and he needs to understand that and know what to do about it.

The first of three very important points to address is that it is vital that your coverage be at replacement cost should anything unfortunate happen. This way if a claim is made the rebuilding will be done at today’s standards and the increase in cost will be covered. Don’t even entertain not taking this full coverage because none of us ever thinks we will need to use it but obviously some of us do.

The second point to address is that of rental loss insurance. This will be invaluable if the property becomes uninhabitable for any reason as it will continue to pay you the rental amount you were getting until the home is ready to be rented out again. Discuss this extensively with your agent to be sure you are covered.

Thirdly, have your insurance agent be very specific about policy exclusions. There are different levels of coverage at different premiums and you need to be able to sleep at night knowing that your property is covered. These details are simple to discover and have saved many investors a small fortune in the past.

Stay away from the ostrich syndrome and be aware. None of us want to have need of the insurance we buy but it is the smartest way of protecting your own home and investment properties. Think of the worst-case scenario and then buy the necessary insurance to cover it. This is no time to cheap out to save a few dollars because should you ever be in a position to use it, the coverage you have will either make or break you. If you never have to use it then you can think of it as a sleep aid because you can rest easy knowing that you are covered.