Installment #4 - Insurance Issues For the Real Estate Investor
Installment #4 - Insurance Issues For the Real Estate Investor
Deductibles:
This is an area of much debate and confusion so let's clarify some things.
Simply stated, the higher your deductible, the lower your premium. If you are a multi-property owner, and your units are insured under separate policies, your deductible will apply, per location, if you are on what is typically referred to as a “package” or “blanket” policy, your deductible usually applies per occurrence (with exceptions, such as a "percentage" deductible for wind/hail). This could be a big difference, out-of- pocket, in the event of a local catastrophe such as a tornado. Take a glance at the deductible you have on all your insurance policies. Chances are, if you increase each of them to the next higher incremental level, the premium savings generated will more than offset the difference. A solid rule-of-thumb is to take the minimum claim you would file, double it, and use that as your preferred deductible on any policy. If you would never file a $1500 claim, then certainly don’t carry a $500 or $1000 deductible.
Besides, as real estate investors, we typically don't pay “retail” for supplies or labor when it comes to construction/rehab/repair...A deductible is, by definition, “self-insurance”. I am an advocate of self- insuring that which you can control or is of a known amount (a deductible, or even the vacant property you got at a tax sale for $10,000). However, self-insuring unknown risk, such as liability, even with an asset-protection strategy in place, is rarely a good idea.