When it comes to insurance, it’s important to have enough to cover the loss of your investment – no matter how that loss occurs. While good landlord insurance policies are fairly comprehensive, these policies rarely include flood insurance. Usually, you must purchase flood insurance as a separate policy through the National Flood Insurance Program (NFIP). And before you start to think you don’t need it because your rental homes aren’t in any high-risk areas, consider the fact that floods and flash floods often strike without warning and, according to FEMA, can and do happen in all 50 states.
Flood insurance is just what it sounds like: it covers your rental home in the event that it is damaged or destroyed by a flood. It covers the actual cash value of the physical structure of the home, the plumbing, electrical, and heating systems, cabinets, and a detached garage (if any). You can also buy coverage for other items, such as furniture, curtains, and appliances, although usually most of the personal property in a single-family rental home belongs to the resident.
There are a number of items that flood insurance does not cover, and if your landlord insurance policy also does not cover these items, recognize that you may need to pay to replace them out of pocket. For example, flood insurance does not cover decks, fences, landscaping, or pools. If a flood washes your landscaping away, or damages your rental home’s pool, you might be stuck with the full cost of these repairs. Flood insurance also may not cover damage caused by mold in some instances, even if it’s a direct result of the flood. That means that the clean-up may be coming out of your pocket as well.
Finally, it’s important to note that flood insurance does not cover the replacement cost of rental homes. This is a significant difference between owner-occupied homes and rentals. Flood insurance covers the actual cash value of the property, which means that the insurance will only pay you what the home’s components are worth at the time they were damaged or destroyed. For example, if you added a new 20-year roof to your rental home 10 years ago, the insurance would only pay you for half of the cost of replacing the roof. For this reason, it’s important to examine your coverage amounts carefully and make sure that you are not paying for “full replacement” insurance when that’s not what you’ll actually get.
Making sure you have the right insurance coverage can be a challenge, unless you have the experts at Real Property Management on your team. We can help you get the right amount of coverage for your investment portfolio, ensuring that your properties are prepared for the unexpected. To learn more, please contact your nearest Real Property Management office.