Definition
Insurance carried in real estate means the property owner is required to maintain active insurance policies that meet specified types and coverage limits for a property. These requirements are often set by mortgage lenders, lease agreements, or investment partners to protect the property’s value and the financial interests secured by it.
Concept and importance
At its core, insurance carried is a risk-management and contractual concept: the owner must carry insurance that covers the structure, personal property (when applicable), liability, and sometimes additional living expenses. Maintaining the required insurance ensures the owner can repair or rebuild after covered losses (fire, storms, vandalism, etc.) and prevents catastrophic out-of-pocket loss.
Lenders routinely require borrowers to carry insurance because the loan is secured by the real estate. If the owner fails to keep insurance in force, a lender can place insurance on the property (lender-placed insurance), which is typically more expensive and may provide narrower coverage. Lease agreements, joint-venture contracts, and investor covenants also specify insurance carried to protect every party’s financial stake.
Types of insurance typically included
- Homeowners insurance — Covers the dwelling, other structures, personal property, and liability for owner-occupied residential properties. Standard policies cover many perils (fire, wind, theft) but usually exclude flood and earthquake without separate policies.
- Landlord or rental property insurance — Protects the building, offers liability coverage, and often includes loss-of-rental-income coverage if the property becomes uninhabitable after an insured loss.
- Commercial property insurance — For office buildings, retail centers, industrial properties and other commercial uses; covers the structure, business personal property, and liability exposures tied to commercial operations.
- Special endorsements or standalone policies — Flood insurance, earthquake insurance, builder’s risk during construction, and enhanced liability policies are examples of additional coverage often required where standard policies leave gaps.
Real-world examples
- Mortgage requirement on a single-family home: A borrower obtains a mortgage and the lender requires proof of an HO-3 homeowners policy with specific dwelling limits and liability coverage. The borrower must maintain that insurance for the life of the loan to protect the lender’s collateral.
- Rental property: A landlord carries a landlord insurance policy that protects the building, offers liability protection, and covers lost rental income if tenants must relocate after damage. This is insurance carried specifically for investment properties.
- Investment strategy using life insurance: A real estate investor maintains cash-value life insurance that can be borrowed against to fund property acquisitions. Here, "insurance carried" refers to life insurance used as part of financing and liquidity planning.
- Commercial development: A developer carries commercial property insurance (and often builder’s risk during construction) to meet lender and investor requirements and to protect the project from construction perils, fire, vandalism, or liability claims.
Practical implications and obligations
When a contract or lender requires specific insurance carried, owners should:
- Confirm required policy types and minimum coverage limits before closing or signing leases/agreements.
- Provide certificates of insurance and keep policies current; document renewals and changes.
- Review exclusions (e.g., flood/earthquake) and purchase additional policies if required or if the property is in a high-risk area.
- Notify lenders, partners, or property managers immediately after a claim or material change to coverage.
Summary
Insurance carried in real estate is the contractual obligation to maintain specific insurance protections on a property. It protects owners, lenders, tenants, and investors by reducing financial exposure from property damage, liability, and other insured perils. Understanding what policies are required and keeping them in force is essential for legal compliance, financial protection, and preserving the value of the real estate investment.
