The Insurance Necessary for Running a Real Estate Business
Insurance is the transfer of risk. Bad things can happen to good people or to good businesses, but those bad things don’t happen to everyone at the same time. When you purchase insurance, you are paying into a pool to cover claims for those in that pool. Running a real estate business has special insurance requirements or coverages that should be strongly considered. You have equity in your properties, and cash in your business. Both of these may be at risk as well as future earnings. If not properly insured, you may even have personal exposure.
Whether you own your properties outright or if there is a loan, you will probably want property insurance. This type of policy provides coverage for the dwelling itself as well as some additional coverages. If you have loans on your properties, your lender will require that you have insurance for the properties to protect their investment. The type of policy that you buy will depend on how the property is used. A rental property requires a different type of policy than a vacant property would require, and both of those are different from a standard homeowners policy. In the event of a fire, weather damage, or other covered perils, your property insurance can help to cover the cost of the damage.
We live in a litigious society. People are quicker to sue than in the past. If someone is injured at your property your real estate business can be found liable for damages. These damages may include medical costs, pain and suffering, and lost wages if the injured person is unable to work. With medical costs on the rise and the possibility of paying for decades worth of lost wages due to an injury on your property, it becomes easy to see why general liability insurance is important for your real estate business.
Floods and Wildfires
Floods inside your property due to a burst pipe or something similar are probably covered by your property insurance policy. However, floods that begin outside, such as those from rising waters during a rainstorm, will require a special flood policy and they’re not covered by standard property policies. Fires are generally covered by your standard property policy, but you should check to be sure that disasters such as wildfires are not excluded.
Depending on the size of your real estate business, you might not have health insurance as a benefit for you and your employees. With the current cost of premiums, it’s tempting to forgo this important coverage to save some money in the short-term. Remember, insurance is our way of planning for the unexpected. Health issues or injuries can arise unexpectedly, affecting your ability to work. If you are unable to work, it’s likely that your business will suffer in your absence. High costs for health insurance can often be mitigated by utilizing a higher deductible. This strategy allows you to self insure for your smaller risks and illnesses. Larger risks and those involving hospitalization would be covered by your health insurance plan after your deductible has been met.
Data Breach Coverage
Our electronically connected society can seem like the wild west of old days, with the exploits of hackers and scammers on the news nightly. While data breaches involving the large companies and household names are the ones we hear about most often, any business regardless of size, has risk of data breach. Larger companies are targeted because of the amount of financial information they hold. Smaller and mid-sized companies are targeted because the security hurdles are easier to clear for hackers. Real estate businesses survive and thrive on cash flow. If that cash flow must be diverted to cover losses due to a data breach, your real estate business can suffer.
The insurance needs of a real estate business are very specific. Discuss your needs with an agent who specializes in business insurance. Prepare to invest some time discussing coverages so you can be sure that your real estate business is covered properly and your exposure is minimized.