All Forum Posts by: Bo Bond

Jiseok,

Ask for more liability than $300k.  That's not much at all.  It should also be pretty cheap overall to get $1M in coverage.  $1M isn't what it use to be; especially now with inflation and people who may be desperate for money and more apt to sue if something goes wrong.

As for your property, you "must" know to what extent your condo association provides coverage.  This can only be found in the governing documents of the association, and ONLY under the insurance section of those documents.  There are 3 different levels of condo association insurance, so that's why this is so important.  Don't just take someone's word for it.  After working in this niche area for over a decade I've run into community managers, board members, and yes, even insurance agents who didn't even know what their governing docs required, nor what the community's policy actually provided coverage for.  Below are the three different levels of condo insurance.  The first requires the highest level of coverage under your unit owner's policy, and the last requiring the least amount of coverage by your unit owner's policy.

#1. Bare Walls Coverage - You are responsible for the entire finish-out of your unit.  Thus the property limit is pretty significant on your condo policy.  You would be required to insure/replace the entire interior of your unit (everything inside the sheetrock of your unit).  This means wall coverings (texture, paint, wall paper, etc.), flooring (hardwood, carpet, tile, etc.), all appliances, fixtures (chandeliers, sconces, tub, shower, toilets, etc.).  

#2. Original Design / First Conveyance Coverage -  In this setting, you're ONLY responsible for upgrades to your unit based off it's original finish-out by the developer.  Your limit is way less with this type of condo association coverage.  If you don't know what upgrades have been made to your unit, you can ask someone who's lived in the community a really long time (if it's an older community), ask the board, review your documents for some possible details, etc.  In this coverage type, the condo community pays to restore the inside and outside of your building & unit back to it's original design by the developer.  This has become the most common type of condo insurance across the country when it comes to condo association insurance.

#3. All Inclusive Coverage - This coverage is very similar to apartment style insurance where some other owner/entity is responsible for everything inside your unit EXCEPT for unit owner contents or renters contents.  In short, if there's a loss and the condo community has this type of coverage in place, the community association's policy will provide coverage for the exterior and interior of your unit back to it's preexisting condition prior to the loss (INCLUDING) any and all unit owner upgrades to the unit.  That's whether you made the upgrades as the owner, or 3 unit owners prior to you made the upgrades.  In this type of coverage the only items you need to protect are your contents within the unit.  Again, if you have no contents, then you'd really be looking at a bare bones condo policy with $1M+ in liability coverage.  

Understand that in each of these coverage types above, the unit owner and the renter need their own coverage for ANY contents they own and bring into the unit (couches, tables, clothes, jewelry, etc.). If this is a STR, then you'll very likely be furnishing the unit and need a decent amount of protection in the event everything burs up in a fire. If this is a LTR, you'll likely have little-to-no contents of your own in the unit, and thus really just have a $1M+ liability policy. Your contents coverage is in addition to whatever level of property insurance you've selected above (#1, #2, or #3) per your condo's governing documents.

I hope you find this helpful.  Condo and townhome insurance can be really difficult to decipher sometimes, and many people are mislead by how it all works.  If you need more help or direction, please feel free to reach out directly anytime.

Good luck!

Shopping your personal homeowners insurance, or your insurance for just a few rentals should prove to be well worth your time and effort as mentioned above.  

However, anyone looking to shop a decent/large size portfolio of residential rentals (10+ rentals), should know that this will be a much more difficult task if they haven't already dealt with the process over the past 6 months.  There's a potential to save in shopping, but you're probably less likely to see any major savings.  This is because most carriers writing master policies are seeing significant rate increases, along with less capacity to write new business.  

It's still well worth your time and effort to shop around with an independent agent who can access many markets.  Just know that this larger type of risk is much more difficult and probably less fruitful than shopping for your personal home and a few rentals.  

To further answer your question, yes, inflation is certainly to blame for some of the rate increases you've experienced. The cost of materials, labor, and supplies have all increased dramatically over the past few years. However you can't overlook massive loss ratios for most carriers country wide.  On top of that, reinsurance carriers are restricting capacity, increasing rates, and are very concerned about market uncertainty.  All of this leads to a hard insurance market. In a hard market, rates/premiums go up significantly, higher deductibles may be forced on policy holders, and policies may include more exclusions or provide less coverage enhancements than seen in prior years.

Good luck shopping for alternatives.  Hope you're one of the lucky ones who finds a better alternative for your situation.

Sam,

Equipment breakdown coverage really started as boiler and machinery coverage.  This coverage originated specifically for boilers and machinery that aided in the everyday operation of a business and/or a large commercial building (boilers, generators, HVAC systems, trash systems, refrigeration systems, computer systems, etc.).  As you can imagine, if these items were to go down due to some mechanical malfunction or electrical surge, then the whole business/building is in a mess.   

Over time, and with all the advances in technology, boiler and machinery coverage transitioned into a broader coverage, and took on a new name "equipment breakdown".  During this transition, it also went from being mainly a commercial/business coverage, to also applying to personal coverage as well.  Since equipment breakdown has become so much broader, it now can include protection for your personal HVAC systems, electrical systems, appliances, sprinkler systems, computer systems, etc.  While I don't see this as a reason not to process a loan, some of your more difficult lenders may require this.  I haven't personally witnessed a lender asking this, but it's certainly possible.  

If the unit owners in your HOA are only responsible for insuring the contents they bring into their unit, then this lender's request makes even less since to me because you're not responsible for insuring these larger systems per your description above. You likely have a loan officer who doesn't realize what they're actually asking of you, and they're just going down the list of typical loan requirements. I'd suggest the buyer visit with the lender about this request specifically. I think it would make since if you were responsible for insuring major mechanical or electrical items (boiler, HVAC, solar panels, generators, sprinkler systems, etc.), but you're not.

A good personal lines insurance agent should be able to help the buyer to maneuver through this lender request and figure things out either way. Also, if your HOA board is on top of things, they should know the type of insurance that's provided by the HOA, and what you need for your own unit. They may also have some experience with this type of lender request. If not, they'll just have to visit with their loan officer (or supervisor) about this directly to get things worked out.

Hope this helps!  Good luck.

Wynn,

Yes, that does seem high generally speaking, but there are a few important factors that we can't see here.  Below must be considered.  

* Location:  If this is in the DFW metroplex, you're easily looking at a .55 cent to .60 cent rate on average.  If you're in Harris / Galveston Counties, then you're probably looking at the correct premium and rate.  

* Loss history:  What do the claims look like for this dwelling over the past 3+ years.  If they've had a loss/losses, then the rate will be higher.  

* Age of the dwelling:  Since this home was built in 1942, if there are any significant plumbing, electrical, or HVAC concerns, rates will be higher.  

* Roof:  If the roof is older 8+ years "some" carriers might ding you for this and increase the rate even more.

All that being said, if none of these are issues, then I'd expect you to see a rate in the .60 cent range from most carriers for a non-coastal TX property.  

Simple math is below on how that would play out in premium.  .0060 x $265,000 = $1,590.  Liability would be around $80 - $100 for $1M in coverage, plus any applicable taxes and fees, and you should be somewhere in the $1,900 range.  

Based off what you've been quoted ($3,200), this seems pretty crazy high to me.  Again, unless this home is in hurricane territory or subject to any of these major issues mentioned above.  Backing into your overall rate it appears your rate is around $1.20 cents.  That's double what we're seeing in rate for the typical TX dwelling.  ($3,200 premium / $265,000 value = $1.20 cent rate).  

As Barak suggests above, it would be in your best interest to find an independent agent who can shop multiple carriers on your behalf.  If you wish to approach direct writers (St. Farm, Nationwide, Farmers, etc.) as well just to cover all your basis, go for it.  In this hard and difficult insurance market, you really have to do a lot of work just to ensure you're getting the best deal possible.  Just make sure you're comparing apples-to-apples as best you can between agents when it comes to coverage and deductibles.  If something looks off or different, don't hesitate to question the agent and ask them to explain.  

Good luck!

Kosh,

If your rentals aren't coastal (30-40 miles of the coast), then what you're likely seeing is exactly what Kevin Hoag mentioned in his post above.  As for folks not quoting landlord policies, that doesn't seem right.  I'm not aware of any major issues in AL when it comes to quoting "non-coastal" properties.  It may just be that you've contacted the wrong agent/s, and need to look for an independent agent who can shop many carriers on your behalf as Kevin mentioned above.  Good luck sir.

@Jennifer Baldassari

There probably isn't any room to negotiate this discount.  Most carriers (standard / direct carriers) are required to file rates with the state, and can only deviate so much (up or down) from that established rate.  They would more than likely have established a separate "paid in full" rate specifically for this discount.  I've never heard of a carrier establishing a discounted rate for quarterly or bi-annual payments, but it's possible I suppose.  Can't hurt to ask.  That said, you will probably only have two options (pay in full and get the 11% discount, or pay any other way you prefer and receive no discount).  

Jack,

Make sure you get a good cost estimation from your agent.  Replacement Cost is "NOT" market price.  If you're in CA or NY, the land alone could be $1M+.  That's crucial to getting the correct replacement cost for your area.  Many investors also have great connections with certain trades, contractors, builders.  This also plays a role when you look to rebuild/reconstruct your rental.  Will you get other perks and discounts that the everyday investor may not have access to?  If so, you can put a percentage on this savings and drive your RCV cost down even lower.  Just keep in mind, some carriers give you a limit and force you to take that limit and nothing less, even when you could very likely rebuild the dwelling for quite a bit less.  The replacement cost is indeed the driving force of your property premium as Kevin mentioned above.  If you're not in a highly litigious area/state, then $1M should be more than enough coverage for your liability (unless you unique exposures not mentioned above, have many rentals, pool at a rental, etc.).  The cost to jump from $300k or $500k in liability to $1M should be very minimal.  I don't know why some agents quote such low limits for liability.  Higher deductibles will save you money especially if you can jump to $5k or $10k.  Jumping from $1k to $2,500 won't do much in my experience, but that also has to do with many other factors like how old is the structure, when was the roof last replaced, any electrical or HVAC issues, age of plumbing, crime score in the area, etc.  Good luck and hope this helps!

Lakshmi,

The insurance market is hardening more than it has in decades.  Considering many catastrophic events over the past few years (floods, hurricanes, wildfires, record level winters/freezes, wind, hail, hurricane, etc.), added pressure from reinsurance carriers, and a lot of market uncertainty, carriers of all shapes and sizes are increasing rates/premiums whether your individual account has had losses or not.  Just like everything else, insurance costs are going up significantly too right now.

Assuming you're referring to Texas rental properties, it's usually worse here (except for FL) when it comes to property rates.  Our state is by far the worst when it comes to the record number of wind/hail events we have every year.  Once you throw in freezing temperatures and hurricanes, it only gets worse.  While you may not be directly hit, many around you in the state are hit, and thus that affects the outcome of your renewal.

Cameron makes a good point above which may help, but if everyone is seeing rate increases, the benefit might not be as good as what you're hoping for.  I hope that's not the case, and you're able to get your premiums back down where you need them.  If you find that rates with other carriers are still high, consider increasing your deductibles (standard deductible, wind/hail deductible, etc.) to save you more money.  Just make sure you know how these deductibles will be applied once you do file a claim.  

Some other items to consider would be co-insurance, actual cash value, removing / lowering your loss of rents coverage, removing or lowering your limit for water and sewer backup, etc.  Obviously these aren't ideal solutions when it comes to insurance, but desperate times may call for some desperate measures.  Everyone's circumstances are different from the next.  Either way, you won't know if you don't shop with an independent agent / insurance broker who can provide you with "multiple" coverage & carrier options that fit you best.  Good luck, and I hope you find this helpful.  

Austin,

You mentioned that this is a condo unit.  If that's the case, you should certainly visit with the condo association board about the loss to see if their policy should/would respond to common area damage in your unit.  Condo insurance is set up in 3 different ways (bare-walls, walls-in, and all-in), so there's a chance you could be protected by the association's master property policy.  However, if the claim is as small as it sounds, your damages still may not surpass the condo association's policy deductible either.  Either way, you should visit with them about this as they may be responsible for any damages to the common areas of a unit when damages are less than the condo association's deductible.  If this loss is really pretty minimal, then it's always easier and better to pay out of pocket when you can afford to do so.

Jamie,

Shop the insurance with an independent agent who can shop multiple carriers on your behalf.  It doesn't sound like that's what you're current agent can do.  When you do this, some of those carriers they approach will be more willing to quote lower values.  The carriers we deal with require a minimum of $110 per sq. ft. in order to get RCV (Replacement Cost Value).  This eliminates the potential for an ACV (Actual Cash Value) and Co-Insurance payout (penalty) at the time of loss.  You're more than welcome to insure for much more, and in most cases true RCV (just about everywhere) is more than $110 per sq. ft. on new builds.  However, that really depends on the type of construction, contractors, relationships, your ability to act a your own general contractor, etc.  With these connections and abilities, you can certainly drive the RCV down.  Also keep in mind that "some" carriers may have a minimum amount that they will allow you to insure to.  Our carriers won't insure anything for less than $70 per sq. ft.  For some it may be $60, or $50, and for others they may not even have a minimum insurable amount.  Either way, I hope this helps.