How to know if you're over insured...

Question

BP,

Just wondering what level of insurance everyone has got. I feel like I'm a little over insured and just wanted to see your thoughts. I am into my properties for around 85k-100k (that is there market value) and my insurance has my rebuild values any where from 120-150k. Am I overpaying for my insurance? Should I lower my coverage rate to reflect my level of investment into the property to increase my cash flow? Any and all help is appreciated! Thanks for the help.

John Roeder · Answer

Thanks. I appreciate the info.

Jason Bott · Answer

@John Roeder Insuring for just your investment is difficult to do.  Most companies will not insure for below the rebuild value as their rates are based on these rebuild calculations.

Let's say you are paying $1000 for $100,000 of building value.  Some companies will allow you to insure for $85,000, but will only pay 85% of any claim as you are only insuring 85% of the rebuild cost.

Above is a very broad example of how insurance carrier do it.  You can get to an Agreed Value policy and insure lower, but you usually need to have many properties to do so.

John Roeder · Answer

Ok. So should I keep my insurance at rebuild value or lower the premiums to protect just the amount of money I have invested?

Eddie Egelston · Answer

Market value has nothing to do with rebuild value. You're comparing apples to cars.