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How to Choose the RIGHT Insurance for an Investment Property

    Ever run into someone who thinks the purpose of buying any kind of insurance is to make money when something bad happens? Whoa! That doesn’t go anywhere good, does it.


    The real purpose of insurance is to have protection against unexpected loss. Keeping that in mind can help the real estate investor find a targeted insurance policy just right for each type of project.


    Yes, strategy matters. Whether it’s a flip, a BRRRR, a long-term rental, or a mid- to short-term rental, each exit strategy calls for different particulars in an insurance policy. We’ll get into that in a minute.

    First, some pitfalls to avoid:

    DON’T go to the agent who issued your homeowner’s policy to ask for the exact same policy for your investment property.


    DO explain what you are doing with the house. Not all insurance companies want to deal with investment properties. Too much risk for them; not what they’re in business for.


    DO use a business insurance broker, who will offer the specific policies and riders you need for investment properties.


    DON’T as in never Google for the cheapest quote. If you do have a loss at some point, you will find your issue is not covered by these online companies. 


    DO work with a real insurance company that has a real local office.


    DO ask them about their turnaround time to evaluate and pay a claim.

    Below is a guide, organized by exit strategy, to help you get the insurance you really need, for the least amount of money.

    Insurance for a Flip:

    The house is vacant and being worked on. Be sure your policy is for a vacant property. A builder’s risk policy covers stolen tools or materials and other risks unique to rehabbing. In the St. Louis area, Lindenwood Insurance Company is recommended. They understand what you’re doing and will give you the appropriate coverage. Issues are rare for flips, but when they do happen, you’ll want to be covered.

    Insurance for a BRRRR:

    A BRRRR is a flip until you place a tenant in it, and the length of time for the flip phase makes a difference in the policy you’ll need. For a 4-6 month or longer rehab, while vacant, use the same policy as for a flip, above. For a quick flip of a couple of weeks, just go straight to the long-term rental policy. You’ll want a vacancy policy to cover times when there is no tenant. Shelter Insurance Company is recommended, through agent John Mica. 

     Consider the difference between A-type neighborhood rentals vs. B- or C-type neighborhood rentals. Some agents will offer an option where you can cover the house for whatever you want to, based on what the house is worth. This helps keep the rate low. You can cover the actual value of the house or the replacement cost. For replacement coverage, it will cost more. 

    It’s an advantage to insure for what the house is worth, for example, $125,000. If it burns down, you’re not likely to want to build a $250,000 house, which would be the replacement cost, in a neighborhood of rentals valued at $125,000. Instead, just be happy to get your money back. You break even, sell the lot, and move on.  

    It goes back to the idea of insurance not being about making money but rather about protection from loss.  If you can save money on insurance by just covering the actual value instead of the replacement cost, great. More money stays in your pocket, and you have all the coverage you need.

    Insurance for Mid-term or Short-term (Vacation) Rentals:  

    Be sure your policy covers vacancies, especially if it’s going to be vacant for over 30 days. Add a short-term rental rider to the rental policy. It will cost, but it covers the special situations that come up with short-term rentals, as well as vacant periods between guests, without having to call your agent each time.

    Insurance Long-term Rentals:  

    Require your tenant to have renters insurance. It’s inexpensive. The tenant pays for it, and it covers their belongings and lodging if repairs require them to be out of the house. The renters policy should include liability for pets, in case the pet bites a neighbor, for example.

    Quick Q & A in Case You Missed Anything

     What is the best way to get insurance?  Not by Googling. Get recommendations from people in the real estate business. Use someone with a real office in the area. Call Ryan Mica with Lindenwood Agency for insurance on flips. Call John Mica with Shelter Insurance for BRRRR properties.

     Do you need vacancy coverage on your rentals?  Yes, whenever it’s vacant. Communicate with your agent each time there is a change.

     How much coverage do you need?  At least enough to cover your loan, but better yet, enough to cover the value of your house.

     Is there such a thing as ‘too many claims’?  Yes. When should you make a claim?  Excessive claims will drive up rates or cause them to drop you. On the other hand, if you never make claims, do make one when you need it. That’s what the insurance is for.

    Your favorite St. Louis Hard Money Lender is pleased to have brought you this insurance information which, when used as recommended, will help you find the right insurance for your investment property and save you money in the long run.