Real Estate Insurance: What Is It, And Why Do You Need It?

Posted On Friday, 06 November 2020 22:14

As with anyone providing a professional service, there are always a variety of risks you will run into that are part and parcel of your job. While there are a great deal of these that can be preemptively identified, and you can take appropriate action to mitigate yourselves from these, there are inevitably certain types of risks that you are unable to foresee. These might include risks that lead to contractual disputes, professional negligence claims, or property damage claims.

For these ‘unknown’ or ‘unforeseeable’ risks, the only way of protecting yourself from them is to have a comprehensive insurance plan in place that will cover you in the event that something goes wrong. You might also be required to have various types of real estate insurance in place under the requirements of whatever professional body licenses you to act as a real estate agent, broker or realtor.

When might you need real estate insurance?

One of the main reasons why you should have real estate insurance is the huge expenses associated with litigation. Particularly for smaller brokerages or sole brokers, defending a professional negligence claim or a contractual dispute could cost you a huge amount of money, regardless of whether you win or lose! Having a comprehensive insurance plan in place will insulate you from the risks associated with litigation costs. If you had to pay these by yourself without insurance, these costs could very well cause your business to close down.

Beyond the costs associated with litigation, real estate insurance also protects you from any costs you might incur in the course of doing your job. In particular, this might include any payments that need to be made as part of a contractual dispute or from a professional negligence claim made against you.

Who needs real estate insurance?

If you are one of the many thousands of real estate brokers out there who operates as a sole trader, real estate insurance is particularly important to have. Real estate brokers who make deals on behalf of a real estate company have a higher level of protection than sole traders as they are essentially protected by the corporate structure of the brokerage itself. Brokers working for a real estate brokerage essentially act on behalf of the company itself, which means that any liability they are exposed to is exposed to the company rather than the individual. Usually, these brokerages are incorporated as a limited liability company (LLC), which further protects them from any personal loss if a claim is made against them.

Sole traders or brokers trading on their own will not have this same level of protection, which means that it is especially important that they have a comprehensive insurance plan in place that protects them from any liability arising from their work. This might come in the form of a contractual dispute or, more often, a professional negligence claim. As such, sole traders looking to find ways of reducing the risks for realtors should have a comprehensive insurance plan in place that provides them with a high level of coverage in case anything goes wrong.

Failing to do so could lead to serious consequences and, potentially, drawn-out legal disputes.

What types of insurance should realtors get?

There are a number of different types of professional insurance available, each of which serves a specific purpose and protects you from particular types of risk.

Firstly, there is professional liability insurance. This essentially protects you from any lawsuits arising from the performance of your professional duties as a realtor. These lawsuits could include, for example, negligence claims, or claims arising from a mistake made in the course of your job, such as cancellation or delay of a sale.

Secondly, it is always sound business practice to have general liability insurance in place. This type of insurance protects you from any liability claims arising from an injury to a person or damage to their property. These types of claim could arise in the context of an on-site visit or, alternatively, when a client visits your own office.

Thirdly, another important type of insurance coverage to have in place is a business owner’s policy. This is a general business liability insurance, which protects any property associated with your business. This could also cover property insurance for your offices or even a company car you use for client visits.

It is also important to remember that your insurance needs will vary depending on whether you are a real estate agent or a real estate broker. There may also be specific insurance requirements depending on the country, region or area you are working in, as well as any professional body requirements.

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