The Terror of Being Uninsured | Building the Empire

In this week’s “Building the Empire,” I discuss the terror of being uncovered by landlord insurance as a real estate investor.

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As a physician, I often think of insurance in terms of health insurance. Without it, walking across the street can be a financially dangerous proposition. Due to the crazy way our hospitals price their services for the uninsured, you could be a CT scan and emergency visit away from bankruptcy.

As a real estate investor, I increasingly think of insurance in terms of property insurance. It serves the same purpose in that it is guarding against financial catastrophe. But instead of your body, property insurance applies to your rental property and your tenants.

I had a terrifying few days this week where I feared that one of my property insurance policies had lapsed due to non-payment. For you to understand why this was a scary experience, let me first review what this type of insurance covers.

Property/Landlord insurance

You can have various types of property insurance to cover your primary residence or possessions if you’re a renter. But as it related to real estate investors, property insurance policies are typically going to be “landlord policies.”

Landlord insurance typically include two types of coverage:

  1. Property: covers damage to your property
  2. Liability: covers injury to someone on your property

For example, if a tree falls over and collapses part of your roof, the property policy would apply. But if that same tree crushes part of an apartment and hurts a tenant, the liability coverage would then apply.

In both cases, the goal would be to limit the extent of the financial damage to the landlord.

(Incidentally, this is one of the reasons why I usually clear away any overhanging trees when I buy a rental property.)

Insurance helps you sleep

Another important benefit of insurance is peace of mind. I know intellectually that my chances of a big fire or house collapse is low (knock on wood). But the fear of something like this happening without insurance is enough to cause me stress and anxiety.

A few sleepless night

This past weekend, I got a letter from Nationwide insurance. My insurance broker sourced the landlord insurance for Indy Apt Building #1 via Nationwide. This building recently finished renovations on the first two floors and has multiple tenants moving in this month.

So you can imagine my horror when I read that as of December 3rd, our insurance policy on the building was cancelled due to nonpayment.

I was even more disturbed because I had paid this policy via our insurance broker on November 23rd.

The letter came in the mail on December 24th, weeks after the possible cancellation of the policy.

A frantic few days

What followed was a frantic few days of anxiety. Most of this time period was over the holiday weekend, unfortunately. Early Monday morning, I emailed and called my broker, left messages, and finally got some good news today.

They confirmed that the policy had been paid back in November, I was covered, and that I could disregard the mailer from Nationwide.

My worries of fires, weather damage, and slip-and-fall injuries receded as I read the good news.

Putting it in perspective

I’m writing this post to highlight the fact that there are downsides to real estate investing. Just as a stock portfolio might cause anxiety when it drops due to market fluctuations, a real estate portfolio can do the same.

Unpaid insurance policies and tax bills are just a couple of the administrative tasks that can slip by unnoticed and later cause anxiety.

In this case, there was no harm done. But it’s a good reminder to me to firm up the administrative side of our business. I hope to do this soon with a virtual assistant. I’ll keep you posted!

–TDD

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