The I (Insurance) Myth Revisted

Insurance is the one thing for which we pay that we never want to use.  However, in the event you need it, you certainly want to be properly protected.  The points presented here by NRIEG should hopefully allow you to grasp a few of the pertinent insurance issues for whatever your real estate endeavor may be.

Myth # (presented in no particular order):

1.Insurance is mutually exclusive of estate, tax, and financial planning…

Actually, insurance inter-relates to each of these, as they should work in harmony with one another.  You attorney, accountant, financial planner, AND insurance advisor should certainly know what each of the other has planned specific to your goals.  As such, excluding one from the others is contradictory to efficiency and cost-effectiveness.  Consider these four folks as your “trusted team of advisors” and encourage them to consult one another as necessary

2.Being named as an “additional insured” on the existing homeowner policy will protect my interests in a subject-to deal…

This could do much more harm than good, in reality, if you (or your entity) own, or have a financial “stake” in the property, be the “first named insured”. The first named insured is the primary recipient of any potential claim benefit or liability protection. An “additional insured” will garner liability protection only. A “loss payee” will have its interests protected in the event the property itself is damaged. (A mortgagee is inherently BOTH). If you decide to keep the “homeowner’s” policy in place and be named as the additional insured, be advised. If it is discovered that the ex-owner, the first-named insured in this case, no longer owns the property, expect the insurer to deny based upon the fact the policyholder no longer owns the property. Even if you manage the claim to be paid, you are not the entity to receive the proceeds, as you are not the first-named insured. If you did attempt to be added as a loss payee as well, chances are the insurer will question the necessity for you being named as such. When the insurer discovers you now own the property, they will need to write a new policy.

3.Buying a property in your personal name and using your homeowner’s policy liability is fine…

I can’t think of any reason that exposing your personal assets to the risk of real estate investing makes sense.  If this is the only option your current insurance person suggested, then either find one that is more real estate investing-savvy, or take the time to help them understand more about what you do.  The last I want to do is tie-in “my stuff” to the exposures of my real estate investments.  Asset protection strategization inherently is a combination of insurance, entity creation, and “compartmentalization”.
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