Every consider not insuring your rental property’s?

Question

I have 19 property’s and 17 are paid for. I have only carried insurance on the house I had and my wife had before we got married.  They both have loans on them.  Many if not most of the other property’s have liability ins linked to my personal house for there liability coverage. ( Jan of 2018 we started a LLC for the rentals and I really need to get their liability away from my personal house.). Either way the way I see it is by assuming the risk my self I can gain another $11,400.00 per year.  Most of my homes are $40,000-70,000 homes.  At this point I have already saved and bought another house with my saved insurance money.  And it’s a $50,000 house bringing in $600 a month.  So each year it’s adding another $6600 to the $11,400 a year savings from assuming my own risk.  And it will continue to grow n multiply until I have a loss.  What are your thoughts

On assuming your own risk?

Jason Bott · Answer

@Terry Hale I have many clients who do this.

It's not that common among the entire investor population as most investors will keep leveraging the equity to buy the next property, not fully paying off the debt, therefor contractually obligated to carry the insurance to secure the loan.

From a Property perspective, you largest risk would be a large Wind or Fire event.  This could be an issue if these homes were all in the same neighborhood, but if they are spread over several counties, those risks are greatly reduced.

Russell Brazil · Answer

What happens when your tenant slips and falls?

Jassem A. · Answer

I only have liability on some of mine. Kitchen fires are most common because people will sometimes forget something on the stove or start a grease fire because they don't clean it. An HVAC person started a fire once and I found out he is not licensed and nothing was covered. Luckily the damage wasn't too bad.

Joe Splitrock · Answer

@Terry Hale I am a little surprised by your savings, which averages to $670 per house. Is there a reason that insurance rates are so high in your area? Rates are higher when the insurance company perceives higher risk. I have properties worth 3-5 times as much with lower premiums.

I don't overall see a problem with what you are doing. Most large companies self insure to save money. The worst case situation would be a natural disaster in your geographic area, but if the odds are low on that (hurricane, tornado, flood, fire) then the risk may be worth the pay out.

Jay Hinrichs · Answer

If I had stayed in the rental business I would have self insured.. we were at 350 doors at one time.

and they were like yours C class 30 to 60k houses we were paying 12k or so a month.. so like you I figured I would need a loss every 3 months.. and to be honest we had one fire that was it..

now wind damage is real though.. I would not do this in hurricane tornado viscious hail storm areas.

but say Vegas sure..

Ryan Dossey · Answer

I think that it really depends. We had a flood and a fire this year (in two separate markets) one caused by an evicted tenant and the other an electrical fire on a vacant (just finished reno YAY! *sarcasm) Had we not had insurnace this would have ammounted to about a $185,000 loss. Which is equal to a lot of years worth of insurance on our properties. These were incidents in different states in the past 12 months. Maybe we just had bad luck that year? It does however seem like quite the gamble. A genteleman I know had 6 high end cabins that were lost in wild fires a few years back. All that were "self insured". This was over a 7 figure loss and his entire portfolio. I'm pretty sure it wiped him out. So, similar to @John Mocker I wouldn't especially if they were near eachother.

John Mocker · Answer

Terry,

On a per property basis, the total cost of a loss may make it attractive to self insure the buildings (you are also self insuring the contents and the loss of rents coverage).  There are risks (called Perils in insurance speak) that could impact many properties at the same area.  Weather (wind in particular) could cause multiple losses to your properties at the same time.  If your properties are concentrated in one area or state you could be facing the rebuilding costs for multiple locations and the loss of rents for those same properties all at the same time.

You may want to have your agent look into a policy on all the properties with a very high deductible and see how that cost would impact your plans.

Terry Hale · Answer

That would be covered under the Libality.  Sorry I didn’t make it clear but I was talking about the actual building side of the insurance.

Every consider not insuring your rental property’s?

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