Real estate agents and brokers personify the phrase "small business" at its most basic. Typically flying solo, with perhaps an office worker or two, these professionals are on their own when it comes to protecting corporate assets and income from financial catastrophe. In fact, the most recent statistics from the National Association of Realtors reveal that fully 83 percent of its members act as independent contractors. This means a lot of folks with minimal benefits, no sick time and no insurance - unless they provide for it themselves.
Given this, real estate pros, especially newly-minted ones, should secure their interests with the same care as would any other entrepreneur. This means consulting a business-insurance expert long before planting a "For Sale" sign in front of that first home or office complex. Once the appointment is on the calendar, consider making the following insurance areas part of the agenda.
Business Owners Policies: Covering the Bases
The Insurance Information Institute, a nonprofit organization dedicated to public education on that topic, suggests that a Business Owners Policy or BOP offers a reasonably priced, effective means of providing key coverage for small real estate offices. Most BOPs include:
- Property insurance: Buildings, office equipment, inventory
- Business interruption insurance: Revenue loss when operations shut down or slow due to property damage
- Casualty protection: Physical harm or property damage ensuing from employee actions or products
- Crime insurance: Financial loss due to robbery, vandalism or in-house white collar criminal acts
- Liability insurance: Lawsuits due to accidents on company premises or during company activities
- Vehicle coverage: Damage to or theft of rented or borrowed cars and trucks
Keep in mind - BOPS offer solid solutions, but they don't take care of everything. Floods, earthquakes, owned vehicles and specialized liabilities typically don't make the cut. Workers compensation and life, health and disability insurance likewise require separate policies.
Property Insurance: From Soup to Nuts
In addition to protecting office structures and inside equipment, property policies can be expanded to include coverage of outdoor fixtures (e.g. storage sheds) and appliances such as snow blowers and lawnmowers. Other types of property coverage are:
- Ordinance or Law: Reimburses construction costs entailed by legally-mandated demolition of an unharmed section of an insured structure.
- Debris Removal: Increases the insurance limit (usually $5,000) to pay for debris removal (e.g. broken glass, destroyed shrubbery) on a covered property.
- Signs Coverage: Insures electrical signs against accidental damage.
- Boiler and Machinery Insurance: Reimburses loss or damage resulting from failure of air conditioning, electrical appliances and other equipment.
Liability Insurance: Blame Can Cost Money
While standard BOPS include liability insurance, the nature of the real estate business makes the purchase of specialized policies a good idea. Two additional options are:
- Errors and Omissions Insurance: Protects the insured when a lawsuit charges mistaken actions or failure to act, thus resulting in injury to the claimant.
Example: A realtor forgets to tell his potential buyer that the front porch has a loose floor board. The client trips and breaks an ankle.
- Umbrella Liability Insurance: Covers what BOPs or general liability do not. These policies kick in when underlying coverage runs out, with certain parameters required to qualify for purchase. According to an I.I.I. report, costs for the first $1 million in coverage run between $150 and $300 a year. Additional increments have lower price tickets.
Business Vehicle Insurance: Your Company Rides On It
Since realtors practically live in their cars, obtaining adequate vehicle insurance is a must. While it's true that personal automobile policies provide some degree of coverage for business-related driving, this does not apply when personal vehicles are primarily business "tools." By the same token, private policies do not protect company-owned cars and trucks, but business vehicle policies do.
Another consideration: When a realtor uses a personal vehicle to transport clients to listed properties (or to any job-related location), he or she is vulnerable to litigation in the event of an accident with injuries. It is imperative to have enough coverage in place to prevent a costly lawsuit from sinking the business.
Workers Compensation Insurance
Laws regulating worker's compensation differ somewhat from state to state, but one thing is true across the board: BOPs do not include this protection. While most realtors and brokers run very small offices, insurance industry pundits suggest that those employing three or more staff seek guidance from their respective state departments of worker's compensation.
Health Insurance: Big Costs, Big Issues
Industry analysts have penned millions of words around the issue of health insurance for real estate industry professionals. Not surprisingly, the biggest challenge continues to be the prohibitive cost of coverage; and because most realtors run solo businesses, they do not qualify for lower group rates. Statistics from the National Association of Realtors reveal that a good number of realtors do not have health insurance. The good news is that the NAR has made government advocacy regarding this dilemma a major part of its mission.
Because health coverage - indeed ANY insurance - is a major business investment, the right agent can make the purchase process both easier and less expensive. Look for a professional who is:
- Fully credentialed according to state and professional regulations
- Willing to explain policies in detail and answer all related questions
- Committed to finding the most comprehensive, cost-effective protection
- Agreeable to a regular policy review and update
- Easily accessible via telephone or e-mail.