Everything You Need to Know About Real Estate Insurance
TLTR: What is real estate insurance, is it mandatory, and how many types of insurance are there? This article goes into detail about real estate insurance so you know exactly what you need protection against.
Real estate is a hot career right now. United States Census Bureau reports that there are currently 309,393 real estate firms operating currently. But can you take the heat or will you simply fizzle under lawsuits and high-costing liabilities?
If you’ve worked as an agent, you know how easy it is to get hit by class-action lawsuits. Get insurance to cover your business from unwanted expenses while you closed leads. If you’re not sure what insurance to splurge on, we’re here to help!
In this blog
What Is Real Estate Insurance?
Real estate insurance is a specially designed coverage for real estate agents, brokers, appraisers, real estate business owners, and realtors. As a real estate agent, you’re exposed to professional liability, cyber liability, general liability, and malpractice claims.
Flipping houses and closing leads is no easy task. Add to that the pressures of class-action lawsuits, you’ll be in the court more than at work. With insurance, you’re better equipped to work worry-free while your coverage handles the financial troubles for you. Before we look into policies and the cost options, let’s talk about different coverage options. Here are some types of real estate insurance you must know about:
What is Real Estate Title Insurance?
Title companies are responsible for transferring property rights from a previous owner to the next. Any discrepancies on their part could lead to bad titles and the seller getting in trouble for rightfully selling the property.
For instance, you’re trying to sell a luxurious bungalow in Watkinsville in Georgia. You’ve found a few potential buyers when suddenly you’re hit with a lawsuit claiming that an owner of the bungalow was unaware they were even selling. Real estate title insurance will cover these claims for you.
What is Real Estate Investor/Investment Insurance?
Also widely known as landlord insurance, real estate investor insurance protects realtors who rent spaces. Renting a property is, sometimes, more complex than selling it. You’re looking at thousands of dollars toward upkeeping the unit; accidental fires and loss of usage can further dent your pockets.
Real estate investment insurance protects landlords, realtors, and building owners from these losses.
What is Real Estate Indemnity Insurance?
Professional indemnity insurance for real estate agents, also known as professional liability insurance, is essential for all businesses relating to real estate. It protects you against various unavoidable class-action lawsuits you will face as a realtor.
What Policies Do You Need for Real Estate Insurance?
Great real estate insurance is a combination of multiple other great insurance policies. Take a look at some essential coverage you need as a real estate agent.
Professional Liability Insurance
Professional liability insurance isn’t one to miss if you’re a real estate agent. You’re more exposed to error and omission lawsuits, malpractice, and negligence claims than most other professionals. It will protect you when your buyers or sellers file claims against you.
Imagine you’re selling a property that gets flooded every monsoon. You don’t know this detail, and you don’t mention it to your buyers either. After making the sale, your buyers sue you for leaving this detail while making the sale. Of course, this comes under negligence claim, and your professional liability insurance coverage will protect you.
Business Owners Policy (BOP)
A business owners policy protects businesses from losses due to damage to assets and third-party liabilities. A BOP is a bundle policy consisting of commercial property, business interruption, as well as general liability insurance.
A real estate insurance agent will include a BOP in your insurance package to provide maximum coverage at a minimal price. A BOP will cover the following risks for your business:
- Lawsuits filed over loss or property damage
- Copyright infringement
- Damage to business property
Commercial Property Insurance
Commercial property insurance covers commercial property from damages due to listed perils such as theft, fire, and natural calamities.
If your business owns or leases office buildings, then commercial property insurance is a must. For example, if your building catches fire, commercial property insurance will cover your losses.
Commercial Auto Insurance
Commercial auto insurance is as the name suggests; it protects your company’s business vehicles. As a real estate business, you may need a company car to take your customers to the land/property you’re trying to sell. Make sure you purchase liability insurance, collision, and comprehensive coverage, as well as medical expenses covered under your policy.
General Liability Insurance
General liability insurance protects a business from third-party liabilities arising due to the operations of the company. Usually, general liability insurance is one of the first policies a business would buy. The coverages of this insurance include bodily injury, personal damage, as well as property damage.
This policy is covered in realtor insurance to protect you from legal fees or loss due to client injury.
Business Interruption (BI) Insurance
As the name suggests, business interruption insurance helps to cover losses when your business needs to temporarily shut down.
This policy will cover losses and expenses—such as employee wages and lost business income—when your agency cannot function due to damage to the property. For example, if your building catches fire and your employees cannot conduct meetings with clients in the office, this might lead to loss of business income. BI insurance can help get businesses back on their feet.
Errors and omissions (E&O) Insurance
E&O insurance for real estate is a specific type of professional liability insurance that covers real estate agents against claims of negligence, bad advice, as well as insufficiency.
According to HG.org, the following are the most common reasons real estate agents get sued:
- Breach of contract
- Failure to disclose
- Failure to advise
Agencies are liable for their agents’ actions. For example, an agent from your company could be sued for negligently failing to disclose that the property was the site of a grisly murder. In this case, you are responsible for getting your agent out of the situation. E&O insurance for realtors comes to your rescue in this instance.
Commercial Cyber Liability Insurance
Commercial cyber liability insurance covers losses arising from cyber risks as well as liabilities. Online data has a high risk of theft and misuse. This policy is for all businesses that deal with sensitive data online.
A report by IBM shows that on average, companies lose approximately $3.86 million from a single data breach. Hence, cyber liability insurance is essential to indemnify the business from such huge losses.
Workers Compensation Insurance
Workers compensation insurance is only handy if you have multiple employees under your business. Your company must protect your employees in case of injuries, liabilities, and damage during work hours, or while they’re in the workplace.
For example, a property you’re listing needs some upkeeping. You get contractors to come and make some changes. While at work, one of the employees’ trips and falls from the stairs. Their injuries will need medical attention, and you’re the one paying for all of it. With workers compensation insurance, you won’t need to worry about most of it.
Employment Practices Liability Insurance
Employment practices liability insurance (EPLI) is also only warranted if you’ve got employees working for your business. Basically, EPLI protects you in case of any unwarranted lawsuits from your employees regarding discrimination, sexual harassment, breach of contract, and wrongful termination.
Of course, there are many violations it won’t cover, but unless you’re the worst boss of the year, EPLI will protect you. This policy allows employers to focus on their company’s growth regardless of what troubles follow them.
What Is Not Covered by Real Estate Insurance?
Real estate agent insurance is designed to provide coverage for specific risks in the real estate sector. However, there are certain standard exclusions from the insurance package. The standard exclusions are:
- Intentional non-disclosure of information related to properties.
- Deliberately breaking the law for extra profit.
- Fraudulent acts on the agent’s end, which are not legally insurable.
The usual exclusions from named perils are:
- Intentional damage or harm
- Nuclear hazard
- Power failure
Moreover, you or your employees intentionally damage the décor of the property to claim insurance could lead to insurance fraud. Insurance companies will deny your claim and you may get in legal trouble if insurance fraud is proven.
How Much Does Real Estate Insurance Cost?
The cost of real estate insurance can vary depending on various factors. Some of these factors are:
- Types of services offered (buying, selling or construction)
- Business assets
- Expected profit
- Area of business operation
- Size of the business
- Number of employees
- Coverage limits
- Your deductibles
Insureon claims that the cost of real estate insurance with general liability costs about $390 per year. Similarly, realtors paid $665 per year for errors and omissions insurance and $520 per year for a BOP.
Every business is unique and so are its risks. Your insurance premium is dependent on your choices. If you need more accurate numbers, you can always consult an insurance expert.
Some insurance companies that provide real estate insurance are:
Some of these insurance providers don’t offer online quotes; you will need to contact them through an insurance agent.
Do I Need Real Estate Insurance?
The real estate industry is competitive and cutthroat. Without a property safety net, you could be closing down your business before you close any leads. Real estate insurance isn’t a one-size-fits-all solution to your business troubles. Make sure you talk to an insurance agent before you settle on coverage.
Don’t know who to consult? We have multiple insurance experts listed on our insurance directory for your convenience. Take a look, and find a local insurance agent for your next insurance purchase.
Did you find this article helpful? Leave a comment below and let us know what you’d like to read about next!
Real Estate Insurance FAQs
Is real estate insurance tax deductible?
Yes, real estate insurance is tax-deductible. The general rule of thumb dictates that if you’re running a for-profit business, insurance can be written off your taxes. Business insurance policies such as cyber liability insurance, commercial property insurance, general liability insurance, and workers compensation insurance can be written off.
Any other policies that are common and absolutely necessary for your real estate business can also be written off. If you want more information, talk to a tax expert or an insurance agent.
Is real estate insurance mandatory?
Real estate insurance isn’t mandatory. However, a legal requirement shouldn’t determine whether or not you prepare for the worst. You could pay for small injuries to your employees every now and then, but realtors are susceptible to lawsuits that could cost you millions.
General liability insurance and professional liability insurance are two of the most important coverage policies we recommend any business to carry. For real estate agents, E&O insurance is also a must.
How can I lower my real estate insurance premium?
One way of lowering your real estate insurance premium is by skipping insurance policies. However, we do not recommend it. Here are some safer ways of lowering your real estate insurance cost:
- Only purchase insurance that you need. For instance, if you don’t have any employees, purchasing workers compensation insurance makes no sense.
- Ask for discounts and offers with your insurance agent.
- Pay higher deductibles.
- Bundle your insurance policies. Insurance companies usually offer discounts if you purchase multiple policies from them.
- Maintain a good business practice. If your credit scores and audits are clean, you’re considered a low-risk customer, which will get you discounts.
For more lucrative discount options, talk to your insurance agent.
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