A first time real estate investor (REI) in a hurry to close the deal can make a costly insurance mistake. You wouldn’t think that it would happen, but it does. No one calls the insurance agent and makes arrangements for the insurance coverage.
In some instances, it’s simply overlooked. At other times, the thought is nothing’s going to happen for the next day or so. You shouldn’t deceive yourself, it’s Murphy’s law. Go a day without the insurance protection that you need and that’s the day a claim will occur.
You don’t have to be a new real estate investor to make this mistake. Experienced real estate investors sometimes forget that water lines break, fires start, and the calamities that you never expect to happen will often come at the most unexpected time. Don’t fall into the trap of thinking to yourself “what are the odds” something will take place.
Many policies provide an endorsement for newly acquired properties. Usually this coverage is extended for 30 days for new purchases that a real estate investor makes. But, you have to read the fine print as there can be exceptions. You can also run into issues if you have an LLC that owns the old property, but you purchase the new property in the name of a different LLC.
In working in insurance claims and litigation, we’ve seen those unexpected claims and losses happen the first week of ownership more times than we can count.
We have also known some underwriters at insurance companies who received the unpleasant news that the profits were wiped out the first week the policy was in force. The point is that experienced underwriting departments can’t tell when a claim is going to take place. If they could, then the insurance company would decline to write the policy until after the claim occurred.
Insurers do their best to make sure that risks are suitable to begin with. If an experienced underwriter can’t predict when a claim will occur, then you shouldn’t either. The solution for the real estate investor is to make sure there’s coverage arranged at the time of closing.
Hope the tip saves you a costly insurance mistake.