Sunday, December 15, 2013

Pig's Ear Insurance: What's Livability Got To Do With It?

What do Tina Turner's legs, Troy Polamalu's hair, and Bruce Springsteen's vocal cords all have in common with the properties I buy to renovate?  They're all insured by  Lloyd's of London in the United Kingdom.  People sometimes think I'm kidding when I share this, but it's true.  Some things that need to be insured are unique, requiring special insurance, and my Pig's Ears (aka extremely run down properties) fall into this group. 

As I was getting ready to close on my current project (The Country Victorian) I realized that I've never written about insurance in any of my previous posts.  Protecting your investment (no matter how much the people around you question it's value) is essential.  Although Step 1 is to take lots of pictures and video before you start working, securing insurance before you take ownership is a must and might seem a little trickier than expected.

A DIYer should not be surprised when the high profile insurance companies are wishy-washy about getting behind your renovation dream with a policy.  From my experience, the more commercials an insurance company has on television, the less likely they'll be to sell you coverage before you start hammering nails.  They'll be more inclined to explain that they can cover your property after you're all finished, but until then they'll basically advise you that they have nothing to offer.  It some times comes down to livability with them needing you to have two of the three systems (plumbing, electrical, HVAC) in working order to get a minimum policy.   This is not a dead end though.  There are independent insurance companies that will write up a policy and can provide needed peace of mind where the big advertisers fall short.  So for the last ten years, Lloyd's of London has been one of the first players on board with me.  I get connected with them by a local agent and since I've stopped living in these houses during the rehab, they insure me with what is called a Vacant Dwelling Policy. 

Also, remember to think in terms of replacement value as you start to make your calls.  You're going to have to pull out the value of the land and think about how much the building(s) is/are worth.  The insurance companies will gladly cover you for an amount that includes the land, but you're not going to get that money if the place burns to the ground so there's no reason to spend money on what you think the entire property is worth.  Focus on the structure(s).

And finally, don't be too surprised if a rogue agent representing a well known company tries to sell you a policy with a subtle expectation that you misrepresent your circumstances/plans to renovate the house.  I've had some agents want me to say I'm living there when I'm not or claim that I'm renting it out so they can sell me a tenant occupied policy.  I don't ever do this.  It's a recipe for problems because it would get really hairy if something happened and I needed the policy.  Don't fudge on the facts.  Tell the truth and shop around until you find a company that will write some insurance that will cover you.  You may have to work the phone for an hour or so and maybe spend a few more dollars, but for me, it's just the best way to go.


1 comment:

  1. oh wow, I couldn't get insurance on the beach shack, period. I didn't know where else to look, everyone I called was like "heck no". I had to buy the place with cash, there was no other way. The bank and insurance wouldn't give loans because the place had to be "livable" -- and that is somewhat subjective, however if the assessor had walked through that place I knew there was no way on God' green earth I was getting a loan or insurance. lol