The Apples to Apples of Insurance Coverage

You would think property insurance should be easily understood and not very complicated and all insurance companies that would insure the same type of property would be afford similar coverages maybe with some minor differences. 

If that’s what you think then you’re wrong. 

It’s rare that two insurance companies will provide identical or nearly identical coverage on the same property since different insurance companies use different forms and apply different coverage conditions. 

Let’s take the following example:

You go into contract to purchase a vacant single family investment property and it takes about 45-60 days from contract to closing. 

The property requires renovations.

You purchase a landlords policy to protect the property. 

Sometime after the purchase or during the course of the renovations or immediately after renovations are completed there’s physical damage to the property by a named peril (a named peril is one of the listed perils in all property insurance policies).  For this example it’s an accidental electric fire. 

You notify the insurance company of the claim and a field adjuster is assigned to investigate the loss and asses the damages. 

During the investigation the adjuster gathers information on the purchase and occupancy and ascertains that the property was vacant at the time of the contract and closing and even though renovations began almost immediately the property has been vacant for a total of more then 30 consecutive days. 

Since different insurance companies have different forms and coverage conditions, based on the carrier and the forms and coverage conditions in your policy the outcome of what would be considered a covered claim, an accidental fire, could be dramatically different. 

One of the following forms or coverage conditions may apply:

1- vacant buildings are excluded from coverage, buildings in the course of renovation are considered vacant 

2- vacant buildings are excluded from coverage, buildings in the course of renovation are not considered vacant but if vacant for more then 30 consecutive days the amount you collect is reduced by a percentage (usually 15-30%) 

3- vacant buildings are excluded from coverage, buildings in the course of renovation are not considered vacant

4- no vacancy exclusion for named perils 

If your policy has condition 1, your claim will be denied. 

Under 2 the claim is covered but the payment will be reduced and under 3 or 4 you have full coverage. 

Let’s take it a step further. 

You finished the renovation, it’s been leased and have a tenant ready to move in but has not moved in. 

Then there’s an accidental fire. 

Some forms say that a building that is leases but is unoccupied or has an absence of furnishings is considered vacant. So even though you purchased the property spent a considerable amount to get it ready for a tenant, and if you have an accidental fire and you have this form or policy condition your claim will be denied. 

So what can you do?  

Research different companies based on your particular needs. 

Once you have decided on a carrier you should request a complete sample policy. 

Read the sample policy to make sure there are no surprises. 

When you get your policy read the entire policy, not just the coverage page but every single page and form attached to the policy to confirm it matches the sample policy. 

Taking these steps when you purchase a policy will assure that you get the proper coverage for your particular situation.  

Larry Rosen is the owner of Rifkin & Rosen Ultimate Property Loss Consultants and Immediate Past President of the POA.  He has been public adjuster for over 40 years and is a frequent lecturer and serves on several insurance and property boards.  He can be reached at (732) 431-0100 or via email at Larry@rifkinrosen.com.

 

 

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