Insurance can be a powerful tool for protecting real estate investments. Depending on their risk tolerance and skill set, real estate investors have different strategies for utilizing insurance and transferring risk. This may include increasing riders or coverage to providing extra coverages for such things as loss of rents, disabilities, private collections, additions or use.
Today, it is possible to insure against almost anything today from fires and break-ins to major catastrophes such as floods and earthquakes. Some strategies include lower premiums to increasing deductibles. You can even choose to carry an umbrella policy that increases your liability coverages since the more you have, the more you have to lose.
Life Insurance to Protect Real Estate Investments
Life insurance can be used to use more leverage to build more real estate wealth. The use of leverage can help you lower your risks, which in turn allows you to be more productive. It will give you the confidence and peace of mind to utilize your assets in more productive ways without the risk of losing everything.
Life insurance can be used as another investment bucket by using it as a personal bank to do deals. You can borrow out the cash value of your life insurance to build/buy a house, flip it, and pay back your policy loan, and keep the rest of the profits for yourself. This strategy works since there are not too many loans that are as easy to obtain as borrowing from your policy.
Keeping your money in a separate investment bucket, i.e., the life insurance policy, protects the builder’s capital from bankruptcy and lawsuits in most states. The money in your policy will build tax-deferred, tax-free, and will pass favorably to your heirs once you pass away.
When you pass away, your family will have the money for paying off real estate properties if they so wish, or they can choose to sell those properties and then use the insurance money for a different purpose. Using this approach ensures that your heirs have options available to them once you pass away.
Mortgage Insurance to Protect Real Estate Investments
If you are ineligible for life insurance, it is still possible to protect your real estate investments using mortgage insurance as opposed to having no insurance at all. If you do qualify for mortgage insurance but not life insurance, the mortgage insurance can pay for your real estate investments once you pass away and your heirs will have a house to live in.
The Bottom Line
The takeaway here is that you don’t have to be over insured or overpay for insurance. Rather, when investing, you should have enough insurance especially life insurance that you never have to worry about the welfare of your heirs once you pass away.
If you use insurance and especially life insurance to protect your real estate investments, you will have peace of mind, and it will allow you to leverage more and continue building wealth. It is one of the best ways to becomes financially free.
Thanks to our friend and Los Angeles financial advisor, Samuel Rad, for his insight on how to use life insurance to protect real estate holdings. Sam is a Certified Financial Planner in Los Angeles and has a wide range of knowledge about personal financial issues. He has helped many people meet their financial goals. Check out the website https://www.samuelrad.com to learn more about the financial firm.