Protecting Your Investment: Know the Limits of Coverage

The property owners and business people struggling to cope with the aftermath of Hurricane Sandy are now having to face the news of another storm bearing down on the battered Eastern Seaboard. If that isn’t enough, news that a small earthquake rattled parts of New Jersey in the early hours of November 5, 2012 set nerves on edge even more. And many of those property and business owners are now learning that the insurance policies they expected to protect their investments won’t cover these events

at all.

Insurance is essential to protect investments of all kinds. Rental property insurance – not standard homeowner’s insurance — offers a way to protect an income property investment against a variety of potential problems including tenant damage, accident liability and natural disasters. Numerous policy options are available, with premiums that are tax deductible as part of the cost of investing.

Depending on circumstances and needs, various levels of coverage can be purchased, from a basic liability policy that covers property damage due to storms, all the way to much more complex coverage that adds in several types of protections against accidental injury to people on the property, liability in legal actions related to the property – and adverse natural events.

But what many property owners are discovering now, in the aftermath of Sandy, is that policies that appeared to cover the damage caused by such a severe weather event actually may not. Depending on the carrier and the policy type, flood an

d/or hurricane damage may not be covered unless specifically requested – or purchased separately. Those assuming that weather damage included events like Sandy are now being told that their insurance policy won’t cover the cost of their repairs.

Although Californians are very familiar with the concept of earthquake (as well as flood and fire) insurance, residents of the Eastern Seaboard generally aren’t — although earthquakes do strike virtually everywhere and Missouri’s New Madrid fault has cracked spectacularly in the past. And even if the temblor in New Jersey was small, only 2.0 on the Richter scale, the fact that it occurred at all raises the question of whether earthquake coverage should be a part of protecting the investment.

Decisions like these may call for some peering into a crystal ball and playing the odds with an eye to what kinds of events are typical for a particular region. But the key to protecting an investment property begins with an educated, informed property owner. Many of the owners in the Northeast assumed they were protected and didn’t press the company for specifics. Others had been sold too much coverage for the wrong things.

Jason Hartman’s 10 Commandments for Successful Investing begins with, “Thou shalt get educated.” Although no one can predict the future, investors must read policies carefully, do their research and prod insurance company representatives for answers about what’s covered and what isn’t. Insurance is meant to provide peace of mind – not new worries.

The American Monetary Association Team

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