When doing major renovations at your property, renovation insurance is a must have. Renovating a property comes with a unique set of risks, so it’s important to have the right insurance coverage to limit your exposure.
To ensure investors have the right coverages in place while flipping and renovating properties, we brought Ann Cook to the show today. Ann is a licensed Realtor in Missouri and Kansas and has worked with several investors during their real estate purchases. The work translates seamlessly to her role at NREIG as a sales advisor, who assists investors with choosing their insurance coverage.
Who should consider renovation insurance?
Anybody who is doing any kind of renovation on a property. If you’re freshening it up for the next tenant or if you’re doing a down-to-the-studs remodel, it’s definitely something you want to have in place.
What coverage do you need for investment properties that are undergoing renovations?
Just like any other investment property, you’re going to need dwelling coverage. There are a couple of forms available based on your insurance needs and your appetite for risk, but you definitely want dwelling coverage and premises liability. The main key with renovations is you want to make sure that you have a Builder’s Risk policy, and that it includes a vacancy provision since no one is going to be living there at the time of the renovations.
We, at NREIG, don’t dictate how much you must insure a property for, but renovations make it a little bit different. You want to make sure that you have the value of your property before renovations insured and you also want to make sure you’re insuring your invested capital (aka renovation budget) as well. You want your payout to be your invested capital amount, not the total insured value like traditional insurance would be.
What does a dwelling policy cover for renovation properties?
So, like I said, you want to make sure it includes Builder’s Risk. You have Special Form or Basic Form based on your appetite for risk, but you also want to make sure that there is Builder’s Risk. That way we know that there’s renovation work taking place. It doesn’t cover the workers that are working on the property.
What does premises liability insurance for renovation properties cover?
If somebody were to trip over a tool and fall, there’s a pool on the premises and somebody were to be injured by it, and attacks by canine animals, those would all be included in the premises liability coverage during renovation. Premises liability is coverage for the unknown. Especially during the renovation project, you never know what could go sideways. There’s a lot of moving parts and a lot of moving people in a renovation project. So, you never know what could happen.
Next up, since premises liability won’t cover general contractors or similarly employed workers, what is the first step investors should take to make sure they are protected?
The first step is going to be making sure that your contractors are licensed and insured. Their protection will cover them while they’re on your premises as well. And if they’re not licensed and insured, your premises liability will not pay. So, the first step, making sure you’re using licensed and insured contractors. And you would want to be named as an Additional Insured on their policy while they’re doing work on your property.
But if you’re doing your own work, you want to make sure you have additional coverage as well.
What are the additional coverages investors should have if they’re doing renovations themselves?
They definitely want to have coverage for Products and Completed Ops and Personal and Advertising Injury. Completed Ops is for the work that they’re going to be doing on the premises. For example, they put a new deck on the back of the property and a year later something malfunctioned in the work that they did. They want to make sure they have Products and Completed Ops protection for the liability risk of that.
Personal and Advertising Injury provides coverage for libel and slander, not physical harm, but more personal harm for claims against words.
Are there any renovations that our clients can do to keep down their insurance premium costs?
Absolutely. Anything that’s going to help prevent a loss in the future, such as repairing their roof, making sure that there are no holes and nothing is going to be leaking in there.
Also upgrading the wiring can help. Unknown wiring is something that can be covered, but it does come with a higher premium cost for the unknown. So, if they can make sure that modern wiring is in place, and no aluminum, that will give them some savings.
What about renovations that may increase their insurance premiums?
Anything structural that you’re doing to the property or adding to the property, especially livable space, is going to add to your premium. Your insurance will be based off your square foot that’s livable on the property. So, if you add a room or finish a basement, it will add to the square footage increasing your premium.
— Game Segment: Best Cities to Flip Houses in 2024 —
See if you can guess the best five cities to flip houses in 2024! Real Estate Skills identified these locations based on factors like median home value, days on the market, household income, active listings, unemployment, and foreclosure rate.
5. Cleveland, OH – Home to the Rock and Roll Hall of Fame and Lake Erie.
4. Chicago, IL – Famous for their deep-dish pizza and bean sculpture, Cloud Gate.
3. Philadelphia, PA – Home to the Liberty Bell. Rocky famously ran up stairs located here.
2. Jacksonville, FL – Their NFL team is the Jaguars. And they’re home to the Saint Johns River, one of the laziest rivers in the world
1. Fayetteville, NC – This is about an hour north of Raleigh and Babe Ruth hit his first home run here.
Watch or listen to the full interview here!
