Though 2016 is now water under the bridge, it’s not too late to learn a few important lessons to make 2017 your best year yet. Sadly, many of the losses we see each day can be prevented with a little planning or on-going maintenance. However, all hope is not lost. Often our greatest blunders become fuel for even bigger successes. We’d like to share a small sampling of some of 2016’s unfortunate, all-too-common and severe losses, so you don’t have to repeat them. Heartbreak can become a thing of the past for your investing life – or – never become a part of it!

The Case of the Moldy High Heels

Cost of the Damage: $1,200

The Loss: It was a rainy day in Michigan and the basement got more than just a little damp. As a result, 30 pairs of high heels (kind of fancy ones at that!) and all of the children’s fall and winter clothes were ruined by mold.

Insurance Insight: Mold, mildew, and fungus are often excluded from standard insurance policies. In addition, a tenant’s belongings are not going to be covered under the policy that covers your property.

Lesson: Requiring your tenants to get Renters Insurance is beneficial to you and especially them.

A Major Stoppage in the Plumbing

Cost of the Damage: $7,500

The Loss: A Texas landlord gets a call from his tenant advising of a major stoppage in the plumbing. What did they find? The licensed plumber they called in advised that a previous tech must have poured cement down the drain line.

Insurance Insight: The owner of the property ended up bearing the full cost of the loss because sewer/drain back-up was excluded from their policy. In fact, many do not know that sewer/drain back-up is a standard exclusion in many property policies. In addition, if the prior technician were able to be found, the proper place to file a claim would be against his General Liability policy as he was responsible for the damage.

Lesson: Always make sure any contractors you hire, whether it be plumbing or electrical or otherwise, are both properly licensed and insured for the specific type of work they will be doing for you. An additional tip? Once you have confirmed coverage by calling the agent listed on their Certificate of Liability, request that they add you as an Additional Insured on the policy. This will help ensure that you are notified in the event the coverage lapses or is canceled.

Where Did the Electrical Go?

Cost of the Damage: $9,980

The Loss: On a not-so-cold day in Georgia, a thief busted his way past a deadbolt of a vacant property and took anything relating to the electrical system.

Insurance Insight: Though the investor had coverage for theft after the deductible and applicable depreciation were subtracted, the settlement was just under $2,000. In this case, the insurance coverage responded appropriately and as expected, but the investor would still have to cover the cost of almost $8,000 to replace the stripped electrical.

Lesson: This theft could have been prevented by several proactive steps.

1. The owner could have invested in an inexpensive, yet effective door reinforcement system. By spending under $100, they might have avoided their $8,000 loss.

2. Be sure your property is well lit. Motion detector lights are a smart choice for any property as they may scare off an intruder who was expecting to work unseen in the dark.

3. Consider installing an alarm system. Portable alarms often work well for investors as they are cellular-based, have a battery back-up and a built-in motion sensor and 95dB siren. (Hint: It’s loud!) Security works best when there are several layers.

Frozen Pipes in the Northwest

Cost of the Damage: $13,200

The Loss: Washington state had a long, unseasonable cold snap and a water pipe froze in the attic of a lovely home on the market. The remodel had recently been completed and it was all ready to meet its new owner. Once the temperatures dropped, the uninsulated pipe burst, causing a large amount of damage to the kitchen and all throughout the house. Drywall and insulation covered just about everything including the furniture being used to stage the house. A messy cleanup involving a Shop-Vac to remove the water, a dehumidifier to remove moisture from the air, and removal of flooring and the lower wall drywall to prevent moisture soaking upward through the entire length of drywall on the walls. Though this was a covered loss for the property owner, they still would have to shoulder their $5000 deductible.

Insurance Insight: Depending upon the type of policy you have, you may or may not have coverage for Water Damage. Also, even if you do have Water Damage included in your coverage, some policies limit this coverage for vacant locations. In some instances, if a location that is reported as occupied is found to have been vacant for more than 60 days, the Special Form coverage that ordinarily includes this peril may revert to Basic Form, which excludes Water Damage.

Lesson: Make sure you review your coverages regularly with your agent so you are aware of what you are both covered for and what your policy excludes. In addition, Water Damage is one of the easiest types of damage to avoid. For vacant properties, turn off the water and drain the system. For occupied locations, you may want to make an extra trip out to your property or call (or text, e-mail, etc.) your tenants before a cold snap occurs in their area. Keeping the water running on a drip overnight may be able to help you avoid a loss like this at an occupied location as well.

Final Thoughts

I’m not sure that I hope you enjoyed reading about some of last year’s worst losses, but I do hope that you learned something that will keep you from experiencing similar heartbreak this year.

Sidebar: Do you speak “insurance”?

Notice some unusual punctuation or capitalization in this article and others written by our contributing insurance experts? These anomalies are not typos. They are deliberate decisions on the part of the authors to help ensure that you, the investor, are speaking and writing the same “language” as your insurance company representatives, adjusters, and other professionals. “We capitalize intentionally to indicate types of coverage, exclusions, or policy formats,” said BreAnn Stephenson, assistant vice president of Affinity Loss Prevention Services (ALPS). “It may seem a little odd, but it is helpful in differentiating between technical coverage terminology and actual physical damage.” For example, if you see “Water Damage,” capitalized, then the term refers to coverage for water damage. Without the capital letters, you are discussing the actual water damage to the property. In some cases, the two things may be related but not nearly the same.

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  • BreAnn Stephenson

    BreAnn Stephenson is assistant vice president of Affinity Loss Prevention Services. Contact her at breann@affinityLPS.com.

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