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Know Your Coverage: Property Insurance and Disaster Claims

The realm of the Biblical King Solomon wasn’t immune to natural disasters. Floods, fires and even earthquakes visited the region during the monarch’s reign as they do today. Recognizing this, Solomon advocated prudence and preparation: “If wisdom shall enter thy heart and knowledge please thy soul, counsel shall keep thee, and prudence preserve thee.’ (Proverbs 2: 10-11).

In today’s world, buying insurance to protect investments is considered a wise and prudent move. But as property owners learned in the wake of Hurricane Sandy, not all contingencies may be covered – and prudent protection requires checking the fine print on any policy claiming protection against natural disasters. And with a new storm looming and the news of a small earthquake in New Jersey, northeastern homeowners and investors are discovering that disaster coverage in rental property policies may not actually cover the disaster that happens.

Insurance is essential to protect investments of all kinds. Rental property insurance – not standard homeowner’s insurance — offers a way to protect an income property investment against a variety of potential problems including tenant damage, accident liability and natural disasters. Numerous policy options are available, with premiums that are tax deductible as part of the cost of investing.

Depending on circumstances and needs, various levels of coverage can be purchased, from a basic liability policy that covers property damage due to storms, all the way to much more complex coverage that adds in several types of protections against accidental injury to people on the property, liability in legal actions related to the property – and adverse natural events.

But what many property owners are discovering now, in the aftermath of Sandy, is that policies that appeared to cover the damage caused by such a severe weather event actually may not. Depending on the carrier and the policy type, flood and/or hurricane damage may not be covered unless specifically requested – or purchased separately. Those assuming that weather damage included events like Sandy are now being told that their insurance policy won’t cover the cost of their repairs.

Although Californians are very familiar with the concept of earthquake (as well as flood and fire) insurance, residents of the Eastern Seaboard generally aren’t — although earthquakes do strike virtually everywhere and Missouri’s New Madrid fault has cracked spectacularly in the past. And even if the temblor in New Jersey was small, only 2.0 on the Richter scale, the fact that it occurred at all raises the question of whether earthquake coverage should be a part of protecting the investment.

Decisions like these may call for some peering into a crystal ball and playing the odds with an eye to what kinds of events are typical for a particular region. But the key to protecting an investment property begins with an educated, informed property owner. Many of the owners in the Northeast assumed they were protected and didn’t press the company for specifics. Others had been sold too much coverage for the wrong things.

Jason Hartman’s 10 Commandments for Successful Investing begins with, “Thou shalt get educated.” Although no one can predict the future, investors must read policies carefully, do their research and prod insurance company representatives for answers about what’s covered and what isn’t. Insurance is meant to provide peace of mind – not new worries.

Jason Hartman’s Masters of Income Property Investing educational showcase is coming. Join Jason and a panel of experts in Irvine, California from January 18-20 for a weekend of learning, networking and fun. Register now for early bird discounts.

The Solomon Success Team


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