How do you keep premiums low?

Question

My 6 family insurance was 3100 last year and now increased to 3500 this year. What do you guys do in terms of trying to keep insurance premiums low as possible? Do you increase deductible?

BreAnn Stephenson · Answer

Hi Peter!

A couple of notes here...

1.  The approach that Jeff M. mentioned with Actual Cash Value can be a path to take if you are only concerned about total losses and you wouldn't rebuild on the lot, but purchase something else instead. Insuring for a lower coverage amount (if the ins. co. or your lender will let you) will bring a lower cost.

2. The place where the effect of Actual Cash Value coverage can be felt more significantly is in the smaller losses in particular, especially with older properties. You may not have enough to do your repairs based on an Actual Cash Value basis if the kitchen that burnt was 20 years old and the insurer subtracts 30 or 40% for depreciation, for example.  If you have Replacement Cost coverage, they would still subtract the depreciation initially, but you would be able to recoup the depreciation once the repairs were completed and the only out-of-pocket expense would be your deductible.  Replacement Cost polices are helpful in the case of older items being damaged as they pay to replace those items with brand new items instead of paying you to replace the items in a used like-condition.

3. Brent and Jeff S. have good points about checking with your ins. co.  They should be able to tell you if the increase was simply due to inflation or for some other factor.  You may be able to restructure the coverage in a way that makes more sense after reviewing it.

4. The higher the deductible, the lower the premium typically.  That stated, the cost difference between a $10K deductible and $25K deductible might not be that significant.  You may find a greater difference between say, $1000 ded. and $5000 ded.  Just make sure the deductible is something you can handle as some have taken out higher deductibles only to find that in a claims situation they couldn't handle the higher out-of-pocket expense.

Whatever you do, make sure you fully understand your coverage and make decisions based on what you would need if you actually have a loss.  You don't want to roll the dice just to save money and then find out that what you purchased isn't sufficient protection in the event of a claim.

Hope that helps!

Cheers, BreAnn

Jeff McCaskey · Answer

@Peter Fokas Hey man it would be great if you filled out more of your profile so we could check on what you're doing and what your goals are to give some more focused advice when you post with questions. But you're asking and that's what really counts - so I give you that my man!

I don't know what kind of property you are buying and I don't know what condition it's in. But I got started by purchasing distressed property and with respect to the insurance, I kept mine low by getting cash value policies. To be honest with everybody it really doesn't matter to me if the house burns down or falls down in a tornado or is destroyed by an earth quake etc etc. To me, this is investing and you make it work however that ends up, at least when you're starting from nothing that is.

So if you have to trim costs, then you can trim them in all sorts of ways and insurance is definitely one of them. So let's say you owe an individual or the bank 50K on a property right..... Why do you need a replacement cost policy for 400K????? Truth is..... You don't!!!!! All you need is enough insurance to cover your liabilities on the property......

SO WHAT YOU DO IS....... You go buy a policy to cover just enough for what you owe on the property plus some fudge factor because you might have to clear the lot when there is a catastrophe. Owe 50k then buy a 55k policy. Not only will your premiums be pennies compared to a full coverage policy but you can make a claim and pull the cash out for things that come up with this or other properties. Because S H I T happens..... You will soon be paying 40$/mo instead of 180$/mo.

So what if you don't have the property any more after a fire etc etc. you don't owe any money now bc the debt got paid off and the lot is cleared and now you can sell the lot or develop a plan for new development. Option is yours....

That's my opinion on the subject - however if you have newer property this might not be the path to travel.....

Jeff S. · Answer

Insurance companies usually have a built in building appreciation rate which jacks up the replacement cost. Call them and ask why and challenge them. They will usually find ways to bring it back down.

Brent Cullipher · Answer

Your insurance company should give you that info.  Have them look at your policy.  Why did it go up?  Maybe build a fire station next to your multi?