Filing Insurance Claims on Rental Properties

File an insurance claim on a rental property when the covered loss is well above your deductible, and then meet the policy's duties after a loss: prompt written notice, steps to stop further damage, an inventory of what was damaged, and a signed proof of loss by the policy's deadline. A proof of loss is a formal statement of what happened and how much you claim, signed under oath. California's standard fire policy, for example, sets that deadline at 60 days after the loss. A replacement cost policy can pay actual cash value first and the rest after you repair, and lost rent is paid only if your policy includes fair rental value coverage.

Is the claim worth filing?

Start with the math. The insurer pays the covered loss minus your deductible, so a $3,400 water damage repair under a policy with a $2,500 deductible pays $900. The deductible amounts are listed on your declarations page, the summary page at the front of the policy, and some policies set a separate, higher deductible for wind or hail.

Then weigh what a paid claim can do to your premium and renewal. These rules are set state by state. Texas, for example, bars insurers from raising your premium or refusing to renew because of weather or other natural-cause claims, or claims that were filed but not paid. A Texas insurer can raise your premium after 2 or more other claims in 3 years (appliance water damage claims that were properly repaired, inspected, and certified have separate protection), and can refuse to renew only after it warns you in writing following a second claim in 3 years and you file a third. Ask your agent or your state insurance department which rules apply where the property sits.

Before you call, know what your policy covers. A landlord policy covers the building. It covers your own property in the unit, such as appliances you supply, only if the policy includes personal property coverage, so check the declarations page. It does not cover your tenant's belongings; those fall under the tenant's renters insurance. Your rental property insurance guide explains the coverage types.

When the net payout is small, like the $900 above, and your state lets insurers raise premiums after repeated claims, paying the repair from your cash reserves can cost less than the claim. A loss several times your deductible, like the $18,000 roof in the example below, is the kind of loss the policy is for.

What to do after a loss

1. Stop further damage. Shut off water, tarp a roof, or board a window. California's standard fire policy requires you to protect the property from further damage; look for the same duty in your policy's section on duties after a loss. Keep the receipts and include them in the claim.
2. Notify the insurer in writing without unnecessary delay. Phone first if that is faster, then follow up in writing with the date, cause, and affected units.
3. Document before you clean up. Photograph and video every room affected, and keep damaged items until the adjuster has seen them, unless they pose a health risk.
4. Prepare an inventory. The standard fire policy asks for a complete inventory of destroyed, damaged, and undamaged property.
5. Get your own repair estimate from a licensed contractor. Building reliable vendor relationships covers checking licenses and insurance.
6. Send a signed, sworn proof of loss by your policy's deadline. Ask the insurer for its form; your inventory, photographs, and estimates support this statement. Under California's standard fire policy it is due within 60 days after the loss; for losses in a declared state of emergency, California bars insurers from requiring it sooner than 100 days. Check your own policy's deadline, and ask the insurer in writing for more time if you need it.
7. Keep a claim log. Record every call, email, and letter with the date and the name of the person you spoke to, and keep estimates and receipts.

Also tell your tenant in writing what is being repaired and when, and point them to their own renters insurer for their belongings and temporary housing. Rental property inspections covers entry notice rules for repair visits.

State law sets how fast the insurer must act. In Texas, the insurer must acknowledge your claim and start investigating within 15 days, approve or deny it in writing within 15 business days after it has everything it needs, and pay within 5 business days after approving it. The insurer can extend the decision deadline to 45 days from the date it tells you it needs more time and why, and the Texas Department of Insurance can add 15 days after a weather-related catastrophe. If you have a mortgage, the check may be made out to you and your lender together.

How the payout is calculated

Actual cash value (ACV) is the cost to repair or replace the damaged property minus depreciation, a deduction for its age and condition at the time of the loss. California limits depreciation to parts of a building that normally wear out and get replaced, such as a roof or flooring.

Replacement cost pays to repair or replace without a depreciation deduction, up to the policy limit and after your deductible, provided you carry the amount of building insurance your policy requires. Some dwelling policies require coverage of at least 80% of the building's full replacement cost at the time of loss; carrying less can reduce payment even for damage below the policy limit. Many replacement cost policies pay ACV first and pay the difference after you finish the repair. California gives you at least 12 months from the first ACV payment to collect that difference, or 36 months for losses in a declared state of emergency. Other states and policies set their own deadlines, so ask the adjuster for yours in writing.

Example, assuming you carry the amount of building insurance your policy requires: a covered storm destroys a roof that costs $18,000 to replace. The insurer treats the roof as halfway through its life and depreciates it 50%.

On an ACV-only policy, the $6,500 is the full payment.

Lost rent is paid under fair rental value or loss of rents coverage when a covered loss makes the unit unfit to live in. The Idaho Department of Insurance notes it may not be standard on your policy. Check your declarations page for the coverage and its limit, and read how the policy measures the loss, such as whether it pays only for the time needed to repair and subtracts costs you stop paying while the unit is empty. Send the insurer the lease, the rent ledger, and the dates the unit was empty.

What to do if the offer is too low

1. Ask for the adjuster's estimate in writing and compare it line by line with your contractor's estimate. Comparing the two shows where they differ, such as missed rooms, labor rates, or depreciation. In Texas, the insurer must also explain any denial in writing.
2. Send a written rebuttal with your contractor's estimate, photos, and receipts, and ask for a re-inspection.
3. Invoke the appraisal clause if the dispute is about the amount of the loss, not whether it is covered. Under California's standard fire policy, either side can demand appraisal. Each side names a competent, disinterested appraiser within 20 days; the two appraisers choose an umpire; and a written award signed by any two of the three sets the amount. Each side pays its own appraiser and splits the umpire's cost. After a government-declared disaster, either side can request appraisal, but neither can force it.
4. Hire a licensed public adjuster, who works for you rather than the insurer and is paid a percentage of the claim payment. Fees are regulated in some states. Florida caps them at 20% of the payment, or 10% for claims from a declared emergency made within a year of the declaration, bars any fee on amounts the insurer paid or agreed to pay before you signed, and lets you cancel the contract within 10 days after signing (for a claim from a declared emergency, within 30 days after the loss or 10 days after signing, whichever is later). Texas bars policies from prohibiting you from hiring one.
5. File a complaint with your state insurance department. The National Association of Insurance Commissioners says the department forwards your complaint to the insurer, the insurer must respond, and the department decides whether the insurer handled the claim fairly under your policy. The insurer cannot retaliate against you for filing. In Texas, the number is 1-800-252-3439.
6. Watch the deadline to sue. California's standard fire policy requires a lawsuit within 12 months after the loss, or 24 months for a loss tied to a state of emergency. Your policy's "suit against us" clause sets your deadline, and state law and court decisions affect how it is counted. Talk to an attorney well before 12 months pass if appraisal and a complaint do not resolve the claim.

If you hand claims to a property manager, self-managing vs. hiring a property manager compares what a manager costs with doing that work yourself.