For the novice real estate investor, it can be somewhat surprising regarding all the people and services involved in a typical real estate transaction. Beyond the price of the property, the closing process alone requires more than just a little paperwork. Real estate agents, inspectors, appraisers, banks and a host of others are involved. But after the deal has closed, the asset needs to be insured and insuring investment property has a few twists that buyers need to be aware of.

All homeowner’s insurance policies cover more than just the physical property. There is also a liability rider as well to protect you if someone is injured while on your property. You’ll also need a liability policy on your rental property, too. A typical policy for a rental is called Dweller’s insurance and not a homeowner’s policy. A dweller’s policy covers the structure but does not include any furniture or belongings in the home.

Liability coverage protects you if one of your tenants slips and falls on a wet sidewalk. A contractor might be injured while working on the property or your property catches fire and somehow spreads to surrounding buildings. Without liability coverage, you could be sued and lose the asset entirely.

If you’re buying a property and engaging in a major rehab, you’ll need a Builder’s Risk or Construction policy. This covers the contractors working on your home and can also cover theft of any equipment on the jobsite. This type of policy also carries liability coverage should a visitor or worker injure themselves while on the job site.

 

When you finance a rental property, your lender will require minimum coverage that will be at least for the amount of the loan as well as the replacement cost of the home. But you need protection beyond the physical asset. Make sure you have a lengthy conversation with your insurance agent to make sure you’re fully protected.