Those who own real estate should be familiar with certain terms regarding insurance:

Insurance is sold to the public, typically, by one of three types of companies; they are:

 

-Stock Companies- These are owned by shareholders who run it, like any other business, for profit.

 

-Mutual Companies- These are owned by the policyholders. However, due to their corporate structure of command, they are quite similar to stock companies. In years that the company is profitable, dividends may be paid.

 

-Subscription Companies- Not common in the US, these are a number of investors who agree to insure against some particular risk. In recent years, subscription companies have been plagued by financial woes. The most famous subscription company is Lloyd’s of London.

 

A policy is the contract or agreement made between the insurer (insurance company) and the customer. Policies can be divided into two basic types:

 

-Indemnity Policies- These pay the customer in the case that a certain event occurs. Examples of this are health insurance, life insurance, fire insurance, etc.

 

-Liability Policies- These pay individuals or companies if the customer is required to pay them. Examples of this include automobile liability, premises liability, title insurance, AAA membership, etc.

 

Not all policies are exclusively indemnity or liability, but include elements of both. For example, homeowner’s and renter’s policies may contain an indemnity portion, regarding theft and a liability portion, covering if someone is hurt within the home.

 

A premium is what is paid when a policy is purchased; it is the company’s estimate of how much can be charged to be profitable with the risk that they will have to pay a claim or meet a request of payment. Because of this, risks that are certain, such as death, have high premiums, because they will have to be paid eventually. The less likely a risk, the lower the premium. This is why premiums for title insurance are so low; typically, less the 4% of premiums are paid.

 

Coverage is the list of risks for which an insurer will pay and it only extends to those that are listed in the policy. Furthermore, most policies include a list of exclusions, which are risks for which they will not pay. Flood damage is excluded in most homeowner’s and renter’s policies.

 

Subrogationmeans that if someone destroys or damages a customer’s house and the insurer pays customer, they obtain any and all legal rights the customer had against that person. Furthermore, the customer may be obligated to aid the insurer in asserting these subrogation rights. If the insurer decides to sue the person, you must comply with them.

 

There are many different types of insurance. Title insurance makes certain that the customer gain full legal ownership of the property being purchased. In the event that a lien appears or some other property own claims a right to some element of what was purchased (the parking lot, for example), the customer with title insurance can sue the title insurance company to recover any losses. This takes the risk out of purchasing a building. In most cases, the SELLER pays the premium for title insurance coverage, but this is not a rule. In some cases it is shared and in others it falls solely on the buyer.

 

Property damage insurance protects the investment of the buyer in the case of fire or other destructive forces. Public liability coverage protects the owner of a building in the event that someone is hurt and attempts to sue. Rent interruption insurance protects the owner of a building from losing rental income in the event that the building is damaged and repairs are needed.

 

There are many varieties of real estate insurance and an experienced attorney can guide you to finding the company and policy that best fits your needs.