Top 5 Most Expensive Insurance Claims for Investment Properties (and How to Avoid Them)
Rental properties can be a fantastic source of passive income, but with the rewards come a few real risks. Insurance exists to protect your investment when things go wrong – but if you can avoid having to file a claim in the first place, you’ll save money, hassle, and future premium hikes.
Let’s walk through the five most expensive insurance claims for investment properties, why they are so costly, and what you can do to stay ahead of them.
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1. Theft, Vandalism & Malicious Mischief
Vacant homes and properties undergoing renovations are magnets for unwanted attention. Construction materials, appliances, copper wiring – you name it – are easy targets. And it’s not just about theft. Vandalism and malicious mischief (like broken windows, graffiti, or even arson) can cause significant damage and delay your plans to sell or rent out the home.
Why it’s costly:
Repairs, replacement of stolen items, and lost rental income during cleanup can add up fast.
Prevention Tips:
- Maintain curb appeal: An overgrown lawn or dark entryway screams, “Nobody’s home.”
- Secure doors and windows: Use deadbolts, security bars, and strong hardware.
- Use technology to your advantage: Install motion-sensor lights and a monitored alarm system.
- Shield entry points: If the home will be vacant long-term, consider boarding up with plywood, steel panels, or clear polycarbonate.
Bonus tip:
Some insurers may offer discounts if you install qualifying security systems – ask your broker!
2. Water Damage
Water damage is sneaky. It doesn’t make headlines like a fire, but it can be just as destructive. A burst pipe or slow leak can cause structural damage, destroy flooring, and even lead to mold – especially in properties that sit vacant for extended periods.
Why it’s costly:
Water spreads fast, and remediation can be extensive, especially if mold removal is involved.
For Occupied Properties:
- Insulate vulnerable pipes. Focus on attics, basements, and exterior walls.
- Tenant education matters. Encourage them to report leaks early and keep faucets dripping during cold weather.
- Cabinet doors help: Opening them during a freeze allows heat to reach pipes underneath sinks.
For Vacant Properties:
- Don’t let the temperature drop. Keep the thermostat at a minimum of 55°F.
- Shut off and drain the water system. Winterizing is key if the home won’t be used for a while.
Optional coverage tip:
Look into Water Backup and Sump Pump Failure endorsements – these may not be included in standard policies.
3. Wind and Hail Damage
Storm season doesn’t just affect the Midwest – hailstorms and high winds can cause serious damage in many parts of the country. Roofs, siding, windows, and detached structures like garages or storage sheds are all vulnerable.
Why it’s costly:
Repairs may involve full roof replacements or structural rebuilds. In some cases, uncovered portions of damage can leave property owners paying out of pocket.
Prevention Tips:
- Schedule regular roof inspections. Catch small issues before they turn into expensive claims.
- Upgrade your windows. Storm shutters or impact-resistant glass reduce breakage risk.
- Tie down the loose stuff. Ask tenants to bring patio furniture and garden items indoors during wind advisories.
4. Hurricane and Tornado Damage
Believe it or not, even California made hurricane history in 2023. Tropical storms and tornados bring both wind and water – an expensive combo. If your property isn’t built to withstand these events, the damage can be catastrophic.
Why it’s costly:
High winds can lift roofs, smash windows, and bring trees down onto your home or neighboring structures. Add flooding to the mix, and cleanup becomes even more complex.
Prevention Tips:
- Tame those trees. Trim back large limbs and remove dead or leaning trees.
- Secure the structure. Reinforce roofs, doors (especially garage doors), and windows.
- Clear out gutters. Keep drainage flowing freely to prevent water from backing up into the home.
- Safe spaces save lives: Consider building a reinforced safe room in tornado-prone areas.
Pro tip:
Standard policies often exclude flood damage – consider Flood insurance if your area is at risk. Learn more about Flood insurance here.
5. Fire
Fire is one of the most common and devastating claims for rental properties. Cooking mishaps, electrical issues, unattended candles – you name it. And in wildfire-prone states like California, the threat is year-round.
Why it’s costly:
Fires can cause total losses, forcing rebuilds and displacement. Even a small fire can render a home uninhabitable.
Prevention Tips:
- Test smoke detectors monthly. Replace batteries twice a year.
- Provide extinguishers. Make sure your tenants know where they are and how to use them.
- Add kitchen safety devices. Install products like StoveTop FireStop Rangehood Fire Suppressor to automatically suppress stove fires, or keep a Prepared Hero Blanket handy.
- Don’t ignore electrical issues. If you’ve got an older property, have the wiring checked and updated.
Coverage check:
Ensure your policy includes Loss of Rental Income coverage – it can help you stay afloat while repairs are underway.
Final Thoughts: Claims Are Expensive – Prevention Isn’t
When it comes to investment properties, a little proactive effort goes a long way. Understanding the most expensive insurance claims and how to avoid them helps protect both your property and your wallet. Good maintenance, clear communication with tenants, and the right insurance coverage can prevent a bad day from turning into a financial nightmare.
