PNC Insurance Needs: How Much Is Enough?

5 Replies

Hey everybody, We are rehabbing our first single family buy and hold investment in Baton Rouge with the BRRR strategy in mind. Here is our first quote on adequate insurance for the property. Does this sound right? Seems high for just a simple PNC quote. I deal with more protection for my business since I'm a contractor but this seems a bit overkill. Carrier: Scottsdale Six-Month Premium: $1179.56 25% minimum earned premium Coverages & Limits: Commercial Property: $125,000 Building Limit – Special Form excluding theft; $2,500 deductible; Replacement Cost Coverage; 80% Coinsurance Commercial General Liability: $1,000,000 each occurrence; $2,000,000 aggregate limit Products-Completed Operations Excluded; Designated Premises/Project Limitation included. Conditions: All subs must carry equal or greater limits of liability naming insured as Additional Insured, hold harmless contract in favor of insured, with Certificates of Insurance. Thank you in advance for your consideration.

Try NREIG, they often give us the best rates.

National Real Estate Insurance Group

Affinity Group Management

7509 NW Tiffany Springs Pkwy #200

Kansas City, MO 64153

@Joseph Ortiz I have used them for multitudes of clients on our hard money deals and they are awesome. I was so tired of beating my head against a wall trying to find someone that would insure properties in need of major rehab and finding them was like a miracle from heaven. Good rates, great service, fast dec pages, and never a whimper about the condition of the properties. 

Do all of your previous clients get their own liability policies on their properties?
Looks as though my quote from NREIG quote came back for Building coverage only at $121 per month. This includes named storms which is very possible here in Baton Rouge.

Trying to only purchase what’s necessary

Thanks in advance

I am a captive insurance agent on the other side of the state, but I am familiar with the Baton Rouge area. The biggest thing to consider in hurricane risk management areas such as Baton Rouge is your wind and hail (W&H) deductible, this can also be called a hurricane deductible/named storm or tropical cyclone deductible. A rough way breakdown to explain this is to explain them in order of what is encompassed under the deductible:

  1. Hurricane Deductible or Named Storm - The least restrictive. Depending on the carrier this can be exclusive to Category 1 and above Hurricanes or it can also include Topical Storms and/or Tropical Depressions
  2. Tropical Cyclone - A little broader in that it will generally include any storms that originate from the Gulf of Mexico regardless of the status (hurricane, tropical storm, etc.)
  3. Wind and Hail - The broadest in that it not only covers any storms originating from the Gulf of Mexico but any wind and/or hail damage regardless of where it originated from

The reason why you need to pay attention to this particular deductible is because it will be percentage based deductible; keep in mind that this means that if your cost of insurance on the dwelling increases, so does the deductible. Generally speaking the deductibles will be either 2% - 5% although through some brokering companies I have seen them as high as 10%, but the deductible will generally need to either meet or exceed your all peril deductible (AOP) of $2,500. Doing some simple math, this means that on $125k your minimum W&H deductible would need to be at least 2% which coincidentally is exactly $2,500.

Before I move off of the W&H deductible, I want to provide you with some real life scenario of what happened during Hurricane Ike in 2008 (after the percentage based W&H was rolled out). I have a friend who is a local owner of a strip mall that had a claim during Hurricane Rita in 2005 prior to the W&H being a percentage and it fell under his AOP deductible which was $1,000. During Hurricane Ike he sustained serious damages, but because he wanted to save some money he had a 5% W&H deductible. His dwelling coverage was around $750k... he was not happy when he realized that he had a $37k deductible.

With regards to the coverages: The liability looks fine. The 80% coinsurance is standard. The difference between the $2,500 AOP deductible and a $2,000 may only be a couple of buck a year to move to, I'd look into that. The earned premium seems a little high at 25%, I generally see around 10% on a lot of my brokered business, but so long as you intend on keeping the policy that should be a big deal.

Updated almost 2 years ago

I had thought that your premium was very low whenever I initially read the thread, but then I realized that the policy is a 6 month policy which is HIGHLY unusual with property policies. At roughly $2,394 in yearly premium that sound in line with what a landlords policy (LLP) would run for $125k in dwelling. Just keep in mind that when your policy renews, this could trigger a re-inspection of the property. Imagine that you're in the middle of the Rehab portion of your BRRR strategy, the policy renews, a re-inspection is performed, and the insurance company says: "you have 30 days to complete the repairs or we will terminate your policy". On a 12 month policy, this isn't a big deal. You buy the home, start the rehab after the insurance is placed and inspection is completed, then you have roughly 11 months to do the rehab (plus another 30 days after the renewal), but on a 6 month policy you're put under a tighter time crunch to complete the rehab since the policy would renew much sooner. Finally, I had also mentioned that 25% earned premium seemed pretty high, again that was assuming that this was a 12 month policy. 25% earned premium on a 6 month policy is ridiculous. Then again, if you intend on keeping the policy then this is no big deal.

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