For most families, their home is the single biggest financial asset. That’s especially true here in Hawaii, where the average home value now exceeds $800,000. That means that unless you insure it properly, a disaster that affects your home could be a financial catastrophe from which you and your family may never recover.
Here are some things you should keep in mind.
‘A‘ohe mālama, pau i ka ‘iole.
“If you do not care for your possessions, they will be stolen by rats.”
Homeowner’s Insurance Doesn’t Protect Rental Properties.
Regular homeowner’s insurance will not protect you if something happens to a rental property you own. If you have a regular homeowner’s insurance policy and you rent out the property, if something happens to your renter that results in a lawsuit, your homeowner’s insurance policy will likely deny the claim.
A second layer of liability exists here, too: If your renter causes liability – for example, if his or her dog bites a neighbor, your neighbor’s attorney is probably going to come looking for you and your insurance policy. But again, your homeowner’s insurance policy won’t protect you. Homeowner’s policies aren’t designed for the additional types and layers of liability that a rental property with a tenant in it can generate.
For that you need landlord insurance.
The same is true if you’re just renting out a spare bedroom or two, or renting to occasional Air BnB customers. Air BnB has ways to help you with liability associated with guests on their platform but be cautious about this: if you are operating on Air BnB illegally, you may give your homeowner’s insurance or landlord’s insurance a way out – a reason to refuse to pay the claim, and fire you as a customer.
If you are renting out your property, you may also need business liability insurance, as well. Speak with your agent, and do a real risk management analysis.
Get separate flood insurance.
Hawaii’s high rainfall levels and steep valleys make many areas prone to flash flooding. Standard homeowner’s insurance doesn’t cover damage from flooding, so if your home is at risk, you need to consider arranging coverage via the National Flood Insurance Program. Also, if your home is in a flood plain, you can expect that any mortgage lender will require that you maintain flood insurance as a condition of the loan. Your insurance agent can help you with this.
You need hurricane insurance.
There are no safe places in Hawaii when it comes to hurricanes and tropical storms. But again, standard homeowner’s and renter’s insurance policies don’t cover wind-related damage as a result of named storms. Bank lenders in Hawaii will invariably require you to maintain hurricane insurance as a condition of your loan.
This is going to be important if your roof is damaged or destroyed by hurricane-force winds. The result is damage not just to the roof, but also serious water damage resulting from the rains following the roof damage. Hurricane insurance will cover both, up to the limits of the policy.
For more information, see this pamphlet from the Hawaii Department of Commerce and Consumer Affairs.
Don’t underinsure your home.
With home prices and insurance premiums as high as they are, it can be tempting to underreport the true value of your home, in order to save a few dollars in insurance premiums.
This can be a shockingly costly mistake. The reason? Co-insurance rules. If you underreport the true value of your insured property and you have a claim, the insurance company could penalize you by severely discounting your settlement on a partial damage claim.
To avoid this, make sure you have your home insured at its full value or as close as possible. Ask your insurance agent to walk you through the process to help you avoid the risk of incurring a co-insurance penalty by making sure your homeowner’s or landlord’s coverage is sufficient.
Have tenants buy renter’s insurance.
How many renters could write you a check to cover $20,000 in damages if they accidentally start a kitchen fire?
Not many, right?
You can sue the tenant, and maybe get a judgment, but getting a judgment and collecting are two different things.
What if they cause damage or liability to someone else and the plaintiff sues both the tenant and you, the property owner? It will be you and your insurance company facing the entire claim.
To protect yourself, require tenants to secure renter’s insurance. It’s cheap – usually the cost of a couple of pizzas a month for a renter – it gives them a lot of protection – and it protects you, as well, because the liability component of renter’s insurance ensures that there’s enough money on the table to compensate you for damage the tenant causes to your property or others’.
Vacant property? You need coverage for that.
Regular homeowner’s insurance or landlord’s insurance isn’t designed for properties that are vacant for months at a time. Pipes leak, mold builds up, pests multiply, and an array of other potential problems can occur. If you expect your Hawaii property to sit vacant for more than 6-8 weeks, speak to your insurance professional about adding a vacant property endorsement or rider to your policy.
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