Life, health, disability, property insurance, risk assessment, and coverage strategies.
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Foundation terms you need to know first (15 terms)
Loss of income in real estate refers to a situation where an investor's expected rental revenue from a property is reduced or eliminated, often due to vacancies, tenant issues, or property damage.
Risk transfer is a strategy in real estate investing where the potential financial burden of a risk is shifted from the investor to another party, often through insurance policies or contractual agreements, to protect assets and limit liability.
Downside protection in real estate investing refers to strategies and measures taken to minimize potential financial losses or negative outcomes in an investment, safeguarding capital against adverse events.
Water damage refers to any destructive impact on a property caused by unwanted water, ranging from minor leaks to major flooding, leading to structural issues, mold, and significant repair costs for real estate investors.
Vacancy risk is the potential for a rental property to remain unoccupied for a period, leading to a loss of rental income and increased holding costs for the investor. It's a key factor in real estate investment analysis.
Complex strategies and professional concepts (4 terms)
Indexed Universal Life (IUL) is a type of permanent life insurance that offers a death benefit and a cash value component, where the cash value growth is linked to the performance of a market index, such as the S&P 500, typically with a floor and a cap on returns.
Counterparty risk is the risk that a party to a contractual agreement will fail to fulfill its obligations, potentially leading to financial loss for the other party. In real estate, this can arise from various stakeholders, including lenders, borrowers, tenants, or joint venture partners.
The Infinite Banking Concept (IBC) is a financial strategy where individuals or businesses use a specially designed participating whole life insurance policy to become their own bank, financing major purchases and investments, including real estate, with policy loans.
Environmental insurance provides coverage for liabilities and costs associated with pollution incidents, contamination, and environmental damage, crucial for real estate investors managing properties with potential environmental risks.
Negligence in real estate refers to a failure to exercise the reasonable care that a prudent person would have exercised in a similar situation, leading to harm or damage to another party. It is a critical concept in liability and risk management for real estate professionals and investors.
Operational risk in real estate refers to the potential for losses resulting from inadequate or failed internal processes, people, and systems, or from external events impacting property operations and investment performance.
Overleveraging occurs when an investor uses an excessive amount of borrowed capital to finance a real estate investment, significantly increasing financial risk and vulnerability to market downturns or unexpected expenses.
Personal liability in real estate refers to an individual's direct responsibility for debts or legal obligations, allowing creditors or plaintiffs to pursue personal assets beyond those held by a business entity. It's a critical risk factor for investors.
Personal liability coverage is an insurance component that protects real estate investors from financial losses due to claims of bodily injury or property damage to a third party on their insured property, covering legal defense and settlement costs.
A legal doctrine allowing courts to disregard the limited liability protection of a corporation or LLC, holding its owners personally responsible for the entity's debts or actions, typically due to abuse of the corporate form.
A policy loan allows a policyholder to borrow money directly from the cash value of a permanent life insurance policy, using the policy itself as collateral. Unlike traditional loans, it doesn't require credit checks and has flexible repayment terms, making it a unique financing option for real estate investors.
A policy premium is the amount of money an individual or entity pays to an insurance company for coverage against specific risks, typically paid regularly (monthly, quarterly, or annually).
Premature death in real estate investing refers to an investor's unexpected passing before their financial and estate plans are fully established, leading to potential financial, operational, and legal challenges for their real estate portfolio and heirs.
Property insurance provides financial protection against physical damage to real estate assets and liability for injuries on the property, crucial for safeguarding real estate investments.
Real estate debt protection refers to various mechanisms and strategies employed by investors and lenders to mitigate the financial risks associated with real estate loans, safeguarding against potential defaults or losses.
Real estate fraud involves intentional deception or misrepresentation in a real estate transaction for personal or financial gain, often leading to significant losses for victims.
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