Cost of fire insurance is killing my deal!

8 Replies

Hi all.  I've got a duplex in East TN under contract.  It's the second duplex I've offered on in the last month (last one didn't make it to contract).  The two deals are similar in price & rent generation (rent is 1.5% of price).

The fire insurance quote I received on my first deal was around $650 and in my model I used that same number for the second deal.  Now that I've progressed to contract, the actual insurance quote is $1,700.  The first duplex was wood construction and apparently because the second duplex is block, the insurance company is saying the cost to rebuild is $175,000 (price of duplex is well under $100,000.  Unfortunately the additional cost of insurance vs. what I expected it to be is killing my returns and I'm not sure I can move forward unless I find a reputable fire insurance policy for $600-$800.

Has anyone else ever had this problem with insurance coming in way higher than expected and have any ideas for me?

Check with Farm Bureau and also a local Shelter Insurance Agent.  Tell them that you do not want replacement cost insurance, you just want enough coverage to cover your investment.  There are some down-sides to these types of policies, so have the agent explain those down-sides to you.

Thanks Bryan, I will run those options down and provide feedback back to the forum if I can get it done.  Appreciate the info!

I use Lloyd Pro Group out of Atlanta but I think they are in Tennessee.  Big outfit, real easy to work with.  Might want to give them a call.

I fired my last broker, who I actually used to work for because they wouldn't insure it for less than replacement cost.  You do have to watch things, though.   If you don't insure 80% of the replacement cost and you have a claim, they don't have to pay the claim at 100%, you'll want to get the details and know your coverage.   You might find that different companies have different valuations on replacement.  

Originally posted by @Bryan L. :

Check with Farm Bureau and also a local Shelter Insurance Agent.  Tell them that you do not want replacement cost insurance, you just want enough coverage to cover your investment.  There are some down-sides to these types of policies, so have the agent explain those down-sides to you.

 I switched to Farm Bureau on my primary and saved near 40%. I insured for an amount I could replace for, not the inflated amount my prior company forced me to insure for. 

@Joseph Gibney  Also try an Erie agent, in addition to an your independent that represents many carriers.  In my experience, Erie has some of the best rates in their operating footprint.

Even Liberty Mutual will write a policy for market value rather than replacement.  They don't like it, and you will get a call every 3 months telling you that you are under-insured and want to schedule a "review", but LM is certainly a reputable company.

Thanks everyone, these were great suggestions and we've now got some more reasonable quotes that should allow us to move forward.  As a side note, during this process I learned that if I choose to insure a property through a company other than the one I currently use exclusively (for home, fire, car, etc), they will cancel my umbrella policy.  Thus it looks like this exercise may result in me bidding out all my insurance products.

Appreciate all the help - Bigger Pockets rocks!

Shop your umbrella and shop then shop everything.  Not that hard to switch if there's real money to save.

They definitely tend to inflate the replacement cost, but it does make sense on their end.  Most claims aren't total losses, so if the house is in a depresssed market and sells for say $40k and has a fire in the kitchen...could easily be $20k in (retail) repairs and they're getting premiums on $40k, the math doesn't work like it normally would.  Thus the 80% rule.  They'll still pay the claim, but only to the percent you have it insured to on what they'd have to pay out.   Just need to know how it all works and keep the risk you are willing to keep and pay someone else to assume what you cant afford to fix if something happens.   I under insure mine pretty regularly on purpose because I'm willing to assume the risk and know I can fix them for a fraction of the normal payout.

If it were me, I'd be shopping the rate AND the replacement cost.  Those guys have no clue what it really takes, they've got computer modeling throwing out a number, I've seen some crazy valuations.  Like I could build it for less than half what they say.

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