If Your Rental Property was Destroyed, Are You Covered?

Mike Nelson
Mike Nelson

This week Gwinnett County was hit with tornado force winds that destroyed several homes.  With 2011 coming upon us it is a good idea to evaluate your landlord insurance policy.  Most policies only cover the face value of the policy. If the replacement cost is more, a lot of the time you will have to pay the difference out-of-pocket.

According to www.foremost.com, there are two main areas to evaluate:

Know what your policy covers 
Determine what you want your policy to do for you in the event of a claim. Landlords who want minimal coverage to protect their property from major causes of loss, such as fire, wind or explosion, should consider a named peril policy. A named peril policy actually names the types of losses that will be covered in the policy.

For landlords who want the broadest coverage available, a comprehensive policy is the answer. A comprehensive policy covers all types of accidental losses, except those that are specifically excluded in your policy.

Besides the base coverage within your policy, you will need to decide what optional coverages to include. These can include but are not limited to: liability, loss of rents, other structures, theft, personal property, earthquake, and vandalism and malicious mischief (sometimes included in the policy).

Know your loss settlement method 
There are two common methods of loss settlement. Actual Cash Value settlement pays only for the current value of your property, which is the cost of replacement minus depreciation based on age and wear, up to the limit in the policy. Replacement Cost settlement pays you the amount needed to replace your property, without deduction for depreciation, with new property of like kind and quality, subject to any applicable deductibles and coverage limits. (Note: With Replacement Cost, you must actually replace the property to be awarded a replacement cost settlement. If you do not, or until you do, your claim payment would be based on an actual cash value basis.)

A policy with Actual Cash Value settlement, as you might expect, will have a lower premium. In the event of a claim, however, the difference between the two can add up to thousands of dollars. The choice is yours. are you willing to pay more insurance premium, knowing that if you don’t you would receive the actual cash value of your home if it were totally damaged?

And be aware that in the event of a partial loss, there may be a depreciation charge applied to your settlement.

It is a good idea to evaluate your policy annually so you can have the coverage adjusted to make sure you are carrying the right amount.  Excalibur Home Management, LLC, an Atlanta property management company, is not an expert in insurance policy so please contact your insurance agent for more information.

Post by John Durham

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