Although it often goes unmentioned, appropriate insurance coverage is a crucial part of any real estate investment deal. Hard money lenders will typically require you to provide either a quote or proof of insurance coverage as part of the application process. If you are not properly insured, then a property loss (partial or total) or liability lawsuit could spell disaster for your entire real estate portfolio along with your investing career. Proper insurance can help you protect yourself against large losses that can wreak such consequences. However, there is a fine line between too little and too much insurance. If your insurance costs become a financial hardship, then you need to re-evaluate whether you are over-insured or if the investment is simply not worth it. Here are the ten types of insurance policies that are most relevant to real estate investors and rental property owners.

Hazard and Fire: These two are always needed and will likely be required by your lender.

Liability: This is also necessary in most situations; it can be purchased to cover the physical property as well as your actual business.

Sewer Back-up: This is almost always needed and can typically be added on to your hazard and fire insurance for minimal fees.

Flood (for Physical Property): This insurance is needed if your property is in a designated flood plain, if it has a propensity towards flooding, or if there is any chance that a catastrophic flood could destroy your property or the buildings on it. It is important to note that typical hazard and fire insurance will only cover flooding caused by internal sources such as a burst pipe or other interior leak; it will not cover flooding with an exterior source such as a hurricane or other large storm event.

Terrorism: This insurance is only needed if you are concerned about damage as a result of an act of terror.

Builder’s Risk: If you are buying mostly vacant, distressed properties with the intention of rehabilitating them, then you will need this insurance until your property is able to qualify for hazard and fire policies. This insurance can be two to four times the cost of normal coverage, so it’s important to factor such costs into any project estimates.

Loss of Income: This insurance is typically only needed by those who make long-term investments in rental properties and can be added on to your hazard and fire policies at an additional cost. It is generally not necessary for investors who are simply planning to fix and flip a rental property rather than hold onto it.

General Contractor: You will need this insurance if you want to become a licensed general contractor and control your own permits for your properties.

Workers’ Compensation: This is needed if you have any employees or contractors working under your insurance policy (e.g., superintendents, maintenance staff, construction workers, or receptionists).

Umbrella Policy: This is never required, but can be a good addition to your policies as it usually offers extra liability coverage.

This list is not exhaustive; it’s always important to consult with your insurance agent before deciding which types of insurance coverage you need for each new real estate investment.