Yesterday I received an email from NREIG that they have decided to increase my monthly premium by 20% per month. I own 4 rental properties in the Tampa bay area with a coverage amount of ±$70,000 each. I also have name storm insurance on each and every property. All of my properties do not have a mortgage on them yet.
I just feel like 20% increase after a year is a bad trend, especially when I have not had any claims. I would love to get recommendations for agents.
Additionally, I've been trying to understand how much coverage should I put on each property. Most of the times I put what I paid for the property or what I paid + renovations. I feel like thats also costing me on the monthly premium. How do you guys calculate and decide the amount of coverage ?
@David Tsedaka I would not accept a 20% increase unless they could justify it. Are all the insurance companies seeing a similar jump? Consider shopping around for different rates.
There are two types of insurance: replacement cost and actual cash value
Replacement cost will replace the property with comparable materials and quality.
Actual cash value means they will pay "fair market value" which means replacement cost minus depreciation.
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You have to look at your personal situation and talk to your insurance rep to fully understand the impact of each type of policy and how much coverage you need.
Replacement Cost (RC) is the cost to rebuild, from the foundation up, with the same kind and quality. Insurance companies use estimating programs to determine an estimate for that. The programs use, type of materials (wood, brick, CB, etc), square footage, number of bathrooms, type of heating/cooling, number of stories, finished basement or attic, etc. Marshall & Swift and Boeteck are two of the providers. Not sure if they have programs for the public. If you know a builder, they may be able to give you a rough Per Square Foot cost to use for an estimate for building in that area (ie. $150/sq ft, $200/ sq ft, etc..) That will at least tell you if you are way off one way or the other.
Actual Cash Value (ACV) is Replacement Cost minus Depreciation. This number is harder to define but is related to the market value of the house minus the land and foundation. It is not exactly this and you should discuss with your agent if there is a coinsurance clause (what percent of the ACV you must maintain so that partial losses are fully paid. If the policy has an 80% Coinsurance clause it means that for a $100,000 ACV building, your policy limit must be $80,000 or higher (80$ of the $100,000).
I've been doing replacement cost valuations for about 14 years. I have done them in Marshall Swift and Xactimate (Verisk software). Marshall Swift is usually for apartment buildings and commercial properties. I don't think I've ever done a SFR using Swift. Xactimate makes a better SFR valuation, but it works on some multi-units as well. One thing you need to understand about insurance is they typically do not cover the foundation, so that needs to be excluded from your replacement cost valuation. I can put together an actual Xactimate replacement cost valuation report based on current pricing down to the month and it's the same software the insurance carrier uses when auditing valuations to insure compliance with the coinsurance agreement. This is not an appraisal - it's completely different.