I am looking for ways to decrease my expenses. I am considering increasing my deductible for my Landlord insurance on a duplex. Currently it is $1000. Is this about average for other landlords? What do other rental property owners have as deductibles?
I am not a professional insurance broker and this is NOT professional advice, but unless you have a property in a C- or D class area, you may want to consider boosting your deductible as high as it will go that leads to real value.
The only time you'll really tap into your insurance is for major issues, likely in the 10s of thousands of dollars range, and not something small. A small $1500 issue for example, is probably just worth paying out of pocket to keep you insurance premiums low. Chock that $1500 up to the cost of doing business and label as repairs/maintenance. I have a $2500 deductible on my policy and am OK paying anything up to that amount that's needed without filing a claim. Even at $3k or $5k worth of damage, I may decide that I'd still prefer not to file a claim.
But as you speak with your provider, you may find that the premium difference in raising your deductible much higher than that isn't worth it. For me, the premium difference between $1k deductible was worth it, but $2500 and the next tier up was not.
After my first year of owning my house the new home owner discount disappeared and my policy shot up 40%. I ended up bundling with my auto insurance and that brought it back down to normal levels. Then I also had a very low wind/hail deductible (basically the roof). I realized Its a freakin brand new roof of only 3 years. So I said screw it, most likely this thing isnt going bad anytime soon so my deductible for that is like $23k which significantly cheapens the monthly payment. I will gradually decrease this deductible back down to $1k over the next 10 years when the roof will be going bad.
I am not a professional insurance broker and this is NOT professional advice, but unless you have a property in a C- or D class area, you may want to consider boosting your deductible as high as it will go that leads to real value.
The only time you'll really tap into your insurance is for major issues, likely in the 10s of thousands of dollars range, and not something small. A small $1500 issue for example, is probably just worth paying out of pocket to keep you insurance premiums low. Chock that $1500 up to the cost of doing business and label as repairs/maintenance. I have a $2500 deductible on my policy and am OK paying anything up to that amount that's needed without filing a claim. Even at $3k or $5k worth of damage, I may decide that I'd still prefer not to file a claim.
But as you speak with your provider, you may find that the premium difference in raising your deductible much higher than that isn't worth it. For me, the premium difference between $1k deductible was worth it, but $2500 and the next tier up was not.
I float mine between $2500 and $5,000 depending on the property. With a dozen properties this saves me about $3,000/year. My reasons are…
I would never make a claim under $5k and maybe not for $10k. With 12 properties over more than 20 years I’ve made 2 claims, both failed toilet supply lines. One repair was about $25k and the other was $35k. I’ve also “self-insured” a clothes washer failure for about $2500 and a main water line failure for about $3500. Not having made those claims saves me about $1200/year in no claims discounts.
If I had a $1,000 deductible and made claims for the $2500 and $3500 losses as well as the 2 big claims. I would have collected $7,000 in additional payouts. Those claims and the lower deductible would have caused me to pay at least $4,000/year in additional premiums times 20+ years.
Divide the premium savings in to the additional deductible and that’s your maximum payback time. (Shorter time if you don’t make a claim that falls in the middle.) insurance is supposed to be for catastrophic losses. Are you really going to make a claim for $1200 if you have a $1,000 deductible?
I typically recommend having a 1k deductible if you are new to real estate and just starting out. Once you purchasing a few additional properties 5+ Then I recommend increasing your deductible to $2500 or 5k and if you own 10+ I always recommend having a 5K deductible. The savings you will receive going from 1k to 5k is around 20% per policy. To go any higher than 5k is typically not worth the small amount of saving. Many investors will pay for damages out of pocket unless then claim is going to be over 10k in costs. As @Bill B. mentioned there is a lot of saving to be made in the long run if you choose to increase your deductible and eat the self insure the small claims. It more than pays for itself over time. When you make a property claim it stays on your loss history record for 5 years.
To minimize the cost of insurance, it may be advisable to consider increasing the deductible levels. However, it is important to note that this strategy entails assuming a greater degree of financial responsibility in the event of a significant loss and may limit your ability to file claims for medium-sized losses. It is essential to carefully consider this trade-off before making a decision.
The reason for that is that the higher your deductible the lower your insurance premium will be and the more you will save IN THE LONG RUN.
However, keep in mind that in the short run things may happen to bite you but in the long run the LESS you rely on insurances, purchased warranties, etc the more you will keep in your pocket.
I base my decision on what amount I'm ok with coming out of pocket if something bad happens like a fire. If I was just starting out and a $2k deductible might cause me hardship I would go with $1k, but if I have reserve monies set aside to cover a $5k deductible then that is what I would go for.
So, the goal is to budget and have reserve funds to cover the highest deductible possible so in the long run you will pay the insurance company less and keep more money in your pocket.