Professional landlords: Lowest insurance costs possible

[Nicholas Nicastro]

I feel like insurance on my business/rentals is a complete scam. I feel rushed each year (partly my fault) to renew for an entire year, and then I feel like I have completely overpaid. 

Our business model is such that we control expenses and never plan to use insurance for anything under say $20k - and never have in the past (we own a maintenance company and keep our homes in great shape - insurance would literally only be for an "act of god" type thing - we handle everything else very cost effectively.) 

Am I right to think that coverage should be simply for what we owe the bank and not a penny more. I am wondering if I screwed this up and gave a bad directive and now we are being charged too much unnecessarily?

As a victim of a house fire myself, I understand the importance of some insurance but presently between property coverage, General Liability and Umbrella, costs through the roof. 

I am curious what other professional landlords think when it comes to insurance?

[Bill Brandt]

I keep a $2500-$5,000 deductible because I’m not making a claim for less than $10l as I get a discount on all my policies for not having any claims for the last 10 years. 

I insure for full replacement value. Insuring for just what the bank is owed means you’re willing to lose the house and any equity you have and then come out of pocket to demolish the house. (The city won’t let you leave a partially burned down property.) if you wouldn’t sell for what the bank is owed than insuring for that amount is a bad plan  

I don’t know why you have to deal with running around for new policies every year, I use allstate and it just renews every year for 3-8% more than the year before. That barely covers inflation and property appreciation. 

With $350-$600k properties and with 300/300k coverage, insurance runs between $500 and $650/year, it’s just a non-factor. 

[Nicholas Nicastro]

Quote from @Bill Brandt:

I keep a $2500-$5,000 deductible because I’m not making a claim for less than $10l as I get a discount on all my policies for not having any claims for the last 10 years. 

I insure for full replacement value. Insuring for just what the bank is owed means you’re willing to lose the house and any equity you have and then come out of pocket to demolish the house. (The city won’t let you leave a partially burned down property.) if you wouldn’t sell for what the bank is owed than insuring for that amount is a bad plan  

I don’t know why you have to deal with running around for new policies every year, I use allstate and it just renews every year for 3-8% more than the year before. That barely covers inflation and property appreciation. 

With $350-$600k properties and with 300/300k coverage, insurance runs between $500 and $650/year, it’s just a non-factor. 

Bill! Thank you, that actually makes a lot of sense and I am not willing to walk away from Equity and come out of pocket to demolish the house. I actually had not considered it from that perspective so I will walk back my thoughts there! Thank you! 

I wish I had something as simple as an auto renewal like you described. That would be my dream. I am constantly told that my rentals are riskier because they are close to a major university, and they are always arbitrarily deemed student rentals, even though most of them are solid brick single-family homes. For this reason the broker has to shop alternative carriers each year yada yada yada and I’m giving a runaround. Perhaps I should just pick up the phone and call Allstate?

Also at a glance, I feel like I am paying way more than $650/ea to insure everyone of my homes. 

Does Allstate also provide general liability or an umbrella? Do you recommend those or anything else? 


Thanks again! ☮️🤘💚

[Bill Brandt]

They don’t offer an umbrella but my allstate agent covers me with a policy through USLI. The umbrella is why I have 300/300 limits, they’re a requirement. 

If you have more than 10 properties allstate may pushback saying they don’t cover that many but your agent can write a “business case” to the company about why they should. (My agent had to do that 1 time a few years ago when I transferred a few extra properties to him that put me over an arbitrary limit.)

[Account Closed]

Nicholas, 

I echo your sentiment about buying insurance to protect your properties from catastrophic events. That's exactly why you need to insure for the replacement cost of your property and not the market value or loan amount which can be very different. 

Shop around for other offers and adjust your deductibles to fit your upkeep strategy. 

[Michael Norris]

@Nicholas Nicastro Speaking plainly you have a couple different ways to insure your rentals.

1. Replacement Cost (RCV) - this is the best type of coverage to have but of course will cost more (usually). To get RCV you’ll need to insure the property to at least 80% to 100% of the calculated cost to rebuild.

*your mortgage company may require you to have RCV fyi

2. Market Value - I’m using this term loosely for the concept.

This is going to be Actual Cash Value coverage which means the payout on a loss will have depreciation applied depending on what is damaged.

*lots of mortgage companies that work with investors will accept ACV some will not.

Here is a basic hypothetical example of how ACV works.

Say the kitchen in your rental is 20 years old and has a fire that causes $30k in damage.

The adjuster may apply something like 50% depreciation for the age of the kitchen so $30k - 50% = $15,000 payout. Then subtract your deductible say $5000 and the payout is $10,000.

Now… real world you own a maintenance company and can probably put in a kitchen for a lot less than $30k so take the ins money and do your thing.

I’ve had some clients who buy the $50k houses in Cle and Toledo that are ok with this type of coverage and if they have a fire they just sell the house As-Is to another investor for whatever they will pay and then combine that with the insurance money and just go buy another house.

*You mentioned student rentals - do you have students in any of your properties? It matters some carriers will not touch college rentals some will they charge a little more.

If you need any help I’m happy to talk

[Nicholas Nicastro]

Quote from @Michael Norris:

@Nicholas Nicastro Speaking plainly you have a couple different ways to insure your rentals.

1. Replacement Cost (RCV) - this is the best type of coverage to have but of course will cost more (usually). To get RCV you’ll need to insure the property to at least 80% to 100% of the calculated cost to rebuild.

*your mortgage company may require you to have RCV fyi

2. Market Value - I’m using this term loosely for the concept.

This is going to be Actual Cash Value coverage which means the payout on a loss will have depreciation applied depending on what is damaged.

*lots of mortgage companies that work with investors will accept ACV some will not.

Here is a basic hypothetical example of how ACV works.

Say the kitchen in your rental is 20 years old and has a fire that causes $30k in damage.

The adjuster may apply something like 50% depreciation for the age of the kitchen so $30k - 50% = $15,000 payout. Then subtract your deductible say $5000 and the payout is $10,000.

Now… real world you own a maintenance company and can probably put in a kitchen for a lot less than $30k so take the ins money and do your thing.

I’ve had some clients who buy the $50k houses in Cle and Toledo that are ok with this type of coverage and if they have a fire they just sell the house As-Is to another investor for whatever they will pay and then combine that with the insurance money and just go buy another house.

*You mentioned student rentals - do you have students in any of your properties? It matters some carriers will not touch college rentals some will they charge a little more.

If you need any help I’m happy to talk

Thanks, this is very helpful! As noted I do not want to eat the equity in the event of a catastrophe, so replacement cost is most likely best, but I do believe I am overpaying to insure against one all things considered (20+ year track record, maintenance company, preventive checks, etc.)

Yes our rentals have adults who attend college classes. I feel like the term "student rentals" is a transparent & unfair way to assign additional risk/premium that simply is not there. A dormitory is a student rental. A 3,000 sq foot single-family brick home is just that.

[Cameron Moore]

Hopefully, you are working with an Insurance broker that understands cash flow. With my own clients, in a perfect scenario where the insurance company is actually sending renewals 45-60 days out, I will touch base with my clients ahead of time to go over renewal as well as shop for a better deal as companies are ALWAYS going up in rate. That is what you get when working with an Independent broker over a captive agent. If you are with a captive agent, they and you are working with both arms tied behind your back because they only have 1 option when brokers have 30 plus. (even if only 4-5 are competetive at any given time)

[Nicholas Nicastro]

Quote from @Cameron Moore:

Hopefully, you are working with an Insurance broker that understands cash flow. With my own clients, in a perfect scenario where the insurance company is actually sending renewals 45-60 days out, I will touch base with my clients ahead of time to go over renewal as well as shop for a better deal as companies are ALWAYS going up in rate. That is what you get when working with an Independent broker over a captive agent. If you are with a captive agent, they and you are working with both arms tied behind your back because they only have 1 option when brokers have 30 plus. (even if only 4-5 are competetive at any given time)

Thank you! I am working with a Broker, but they only contact me around a week before renewal and I do not feel like they have my best interests in mind (lowest cost with best coverage.) Previously, a friend worked there and was on my account so things were done well, but since he left I feel like I have no personal relationship and on one in my corner (my fault - hence trying to correct for it now.)

I am excited to see what Honeycomb comes up with!

[Cameron Moore]

Insurance is tough right now, very few companies are profitable so they are all rate hiking an average of 30-40% in Texas. Very tough to make money when you are paying $200/month for a 1600 sq foot rental because the houses in the area are filing claims. 

[Jason Bott]

@Nicholas Nicastro great comments by everyone.  I'd add the following;

1)  Due to rates increasing as @Cameron Moore references, most insurance carriers are inundated with underwriting their own renewals as well as receiving tons of requests for quotes.  In the last part of 2022 we are not getting client renewals more than 4 weeks ahead of time...many times 10 days before renewal.

2)  It is possible you are working with a smaller broker who doesn't have access to the carriers currently looking to write SF portfolios.  If this is the case, then they are trying to stick you with underwriters who are not really interested in writing your business.  

3)  Most insurance carriers will have minimum sq/ft values in order to insure the building.  Right now we are seeing $70 per sq/ft  for ACV and $100 per sq/ft for RC.  So regardless of the market value, if you have a 2,000 sq/ft home, the lowest value most insurance carriers will insure for is $140k for ACV and $200k for RC.

[Nicholas Nicastro]

Quote from @Jason Bott:

@Nicholas Nicastro great comments by everyone.  I'd add the following;

1)  Due to rates increasing as @Cameron Moore references, most insurance carriers are inundated with underwriting their own renewals as well as receiving tons of requests for quotes.  In the last part of 2022 we are not getting client renewals more than 4 weeks ahead of time...many times 10 days before renewal.

2)  It is possible you are working with a smaller broker who doesn't have access to the carriers currently looking to write SF portfolios.  If this is the case, then they are trying to stick you with underwriters who are not really interested in writing your business.  

3)  Most insurance carriers will have minimum sq/ft values in order to insure the building.  Right now we are seeing $70 per sq/ft  for ACV and $100 per sq/ft for RC.  So regardless of the market value, if you have a 2,000 sq/ft home, the lowest value most insurance carriers will insure for is $140k for ACV and $200k for RC.

Thank you!