The plan entity must be the named insured
Your IRA LLC, IRA Trust, or Solo 401(k) trust is the property owner and must be listed as the named insured on every policy. Agents who primarily serve homeowners sometimes issue a policy with the individual as the named insured and the plan entity as an additional insured or loss payee. This arrangement may not provide full and proper coverage for a plan-owned property. Insist on the entity as the named insured before accepting any policy.
Hazard coverage
A standard landlord policy provides hazard coverage for physical damage to the property. When purchasing, confirm whether the policy is written for replacement cost or actual cash value; the difference can be significant after a major loss. Replacement cost coverage pays what it costs to rebuild or replace at current prices; actual cash value factors in depreciation, which can leave a meaningful gap.
Ensure coverage extends to all structures on the property. Some policies automatically cover outbuildings such as garages and sheds; others do not.
Liability coverage
Liability coverage protects the plan entity against claims arising from injury or negligence on the property. An industry-standard minimum is $1,000,000 per occurrence. As your plan's property portfolio grows, higher limits or a separate umbrella policy for the plan entity is worth considering. Umbrella coverage is generally available at modest incremental premium cost.
Renter's insurance
A landlord policy does not cover a tenant's personal belongings, and liability arising from a tenant's actions is typically excluded as well. Requiring tenants to carry renter's insurance reduces exposure to both of these gaps. Most states permit a renter's insurance requirement in a lease, provided it is applied equally to all tenants. If you require it, obtain proof of coverage at move-in and at each lease renewal, and have the plan entity listed as an additional insured on the tenant's policy.
Specialty situations
Vacant or under-renovation properties require specialized coverage. Standard landlord policies typically exclude or limit coverage for vacant properties. If your plan acquires a property for rehabilitation before it is occupied, confirm with your insurer that the policy covers the property in that condition. Not all carriers offer this coverage; seek out insurers with experience in investment property.
Frequently Asked Questions
Can the insurance premium be paid from the plan account?
Yes, and it must be. Insurance is a plan expense. Premiums are paid from the plan entity's bank account, not personally. Paying personally and seeking reimbursement from the plan is not permitted.
Do I need separate policies for each property?
Typically yes, though some carriers offer portfolio policies for investors with multiple properties under a single entity. Discuss your specific situation with an insurance professional experienced in investment property and entity-owned real estate.