Inadequate insurance can bankrupt real estate investors after a single catastrophic loss. But over-insurance wastes money on premiums for coverage you'll never use. Strategic insurance planning finds the optimal balance.
Essential Coverage Types
Property coverage (replacement cost, not actual cash value—the difference can be $50,000-$100,000). Liability coverage (minimum $1-2 million per property). Loss of rents (covers mortgage while property uninhabitable). Flood insurance if in flood zone (federal program required for mortgages in FEMA zones).
Replacement Cost vs Actual Cash Value
Replacement cost pays to rebuild regardless of depreciation. Actual cash value subtracts depreciation—10-year-old roof valued at 50% of replacement cost. Always choose replacement cost for properties you want to rebuild. Small premium difference (5-10%) provides massive benefit difference.
Deductible Strategies
Higher deductibles ($5,000-$10,000) reduce premiums 20-40% compared to $1,000 deductibles. Self-insure small losses, use insurance for catastrophic events. Maintain adequate reserves to cover higher deductibles without financial stress.
Umbrella Policies
Cover liability exceeding property policy limits. Cost $200-$500 annually for $1 million coverage. Protect personal assets from judgments exceeding property insurance. Essential for investors with significant net worth or multiple properties.