All Forum Posts by: BreAnn Stephenson

Glad to be of help Jeff!

Hi Justin!

Yes, it can be challenging for investors when it comes to insurance as many standard companies have stipulations on the age of many things, roofs being one of the most commonly scrutinized. As they are taking on the risk of protecting the property and reimbursing you if you have a loss, they do have a right to be sure that they have properly underwritten for the risk...meaning collecting the correct premium, correct deductibles, coverage options, etc.... Many standard companies require an up-front inspection, so it is very common.

That stated, there are investor-friendly companies out there that don't do up-front inspections as they have already accounted for writing coverage for properties that are sitting there fire-gutted to those that have just been fully remodeled. 

 First of all, great points in your post Rob...! 

I did want to address the two items above from an insurance or loss prevention perspective... 

It's not unusual for investors to feel reluctant to mandate their tenants to purchase renter's insurance, but I would propose some benefits to investors and then have a suggestion as to getting your tenants on board with carrying it.

1. Renter's insurance can safeguard your relationship with your insurance carrier. If your tenant is at fault for unintentional damage to your property (overflows a bathtub, leaves a candle burning while out for the evening and burns the house down), you can "run" to their coverage first and potentially avoid having to file a claim with your carrier. Reducing claims frequency will help with the stability of your rates and help secure a wider variety of coverage options for your property.

2. If you opt for Basic Form coverage that doesn't include water damage, and your tenant also doesn't have renter's insurance, you could be opening yourself up to an exposure. For example, if your tenant decides they can't afford the heating bill and they decide to turn the heat to 45 degrees - or OFF - and a pipe bursts...voila! you have water damage that will most likely be paid for out of your pocket. Really the point here is that you could end up paying for damages that your tenant causes when there could be coverage available.

3. Renter's insurance is really inexpensive. Typical cost for standard limits is ~$15-$25/mo. Renters who obtain the coverage through their auto carrier can typically get multi-line discounts too which can also save them on the cost.

4. You might get better tenants. If someone is prudent enough to have obtained renter's coverage of their own volition, it is a demonstration of responsibility. More responsible tenants mean less chance of something going seriously wrong at your property and also chances are, less wear-and-tear damage to pay for in between renters... Not to mention an increase in stability, less evictions, etc... Always remember that there isn't ANY insurance that covers intentional damage done by tenants. The better your relationship with them, the less likely you are to face that difficulty.

Why should renters have coverage? (i.e. benefits to stress to your tenants)

a. It covers their "stuff". Renters need to think about what it would cost to replace some or all of their possessions if there were to be a fire or a break-in. Many people cannot afford to replace their collection of electronics, furniture and even replacing clothing is very expensive even if you are building a wardrobe at Wal-Mart prices.

b. If they are responsible (via their negligence) for damaging your property, they will be protected from having to pay out of their own pocket or from the threat of you suing them. "Wear-and-tear" is a part of the rental business and one reason for collecting a security deposit, but if there is a kitchen fire, it is doubtful that the deposit will cover those repairs.

One idea to encourage tenants to purchase insurance... 

Consider building in an additional $20 to your rental rate to new tenants, require that they obtain the coverage, but also offer a $20/mo. discount when they give you a copy of their proof of coverage. You are not making any less on rent, the tenant has coverage that benefits them and you, and they feel like they aren't having to pay for the coverage either. If my landlord required that I purchase renter's insurance and I knew that I'd be "reimbursed" for it so it essentially was no cost to me, I'd take that deal... 

I hope that helps...!

-BreAnn

Thanks for tagging me Azeez! As I am not as familiar with commercial properties, I actually would defer to @Tim Norris or @Shawn Woedl for their expertise in this area. Tim is pretty active on here and has a wealth of experience both as an agent and as an investor himself.

Hope that helps!

My best,

BreAnn

Hi Ray!

The cost really seems pretty on par with the industry as really that's breaking down to ~$3.05/property/month. The only thing that I might advise is not mixing your rentals with your personal assets. As you mentioned needing to increase your auto GL limit to $500K, I'm assuming that the umbrella you purchased is overlaying everything you have - house, cars, rentals?  Yes/no? How are you insuring your rentals today?

I would agree with those who have already posted Stephen.  The cost if something goes wrong can far exceed the cost of having those who are working on your properties properly licensed and insured.  The cost of insuring someone who isn't doing structural work is really pretty low (when my husband was working for himself it was ~$70/mo in KS), so there's really no good reason for a solid independent contractor/handy man not to be insured.  

Another thing to consider is that in many/most cases, your premises liability is not going to step up and cover you as the owner if a worker is hurt on your property... which is why the contractor/GC having WC and GL is so important.  Any good PM will also have their own GL policies to cover any negligence on their part at the property as well as to protect them in the course of business for potential wrongful evictions, etc.

We are seeing more and more claims filed due to slip and falls in the last two years and even if you or the PM aren't truly negligent, you still want to make sure that everyone has the $$ to pay for defense should someone bring a suit against you... the GL will also pay for defense costs in those cases so it is a very beneficial thing to have.

Hope that helps!

Got it, that makes sense @Timothy W., thanks!

 Thanks for this Tim and good points about the finishes.  I have a question though... why would it cost more for the ins. co. to repair something on an ACV policy?  Wouldn't the ins. co. likely be paying out less because the depreciation they apply cannot be recuperated by the insured... unlike a Replacement Cost policy form where the insured could come back and recoup part or all of the withheld depreciation?  Thus, an ACV policy's premium would be lower than RC?  Or am I just misunderstanding what you meant there?

Thanks in advance, BreAnn

Hi Thomas!

The 1% and 3% are common, and so are the following levels:

-$1000

-$2500/$3000

-$5000

-$10,000

Many investors tend to do $2500 or $5000 deductibles as it keeps premiums lower and rates more stable by eliminating some of the smaller claims from the mix that an investor can really afford to take care of on their own.

Our advice would be to approach insurance from a catastrophic perspective, in other words, use it when a loss would severely harm or take you out of business.  Carriers tend to get concerned when they see claims frequency as they start to wonder if they will end up with not only a string of small claims, but a string of large ones down the line.  Claims frequency can result in non-renewals, so beware of choosing a smaller deductible and its implications.

That stated, don't choose a deductible that really is unreasonable for you to stomach if you do have a loss.  Some choose a $10K deductible thinking they won't ever have a loss only to realize they can only handle a $2500. In that case, the cost savings wasn't really worth it in the end.

Aside from the deductible, be sure that you understand the types of coverages included in what you select.  Look for value over price, if that makes sense.  If you don't fully understand what you're covered for, make sure your agent is willing to give you an insurance 101.  No one is expecting you to become an insurance professional, but one of the key reasons (in my opinion) that people don't like insurance is because many agents don't take the time to educate their clients on the products they are selling them.  Buyer's remorse is high in any situation where a customer doesn't fully understand the product they have purchased... what you don't know can harm you, so do your due diligence in this area just as you would in any other area of your investing life.

Hope that helps!

-BreAnn :)

Maybe other agents can weigh in on this, but to John's point about newer homes being more expensive to insure... to me it seems pretty simple.  The insurance co. is going to have to pay out more to replace an item that is damaged on a newer home because not as much depreciation will be applied to the settlement to reduce it.

That stated, some co.'s actually have a surcharge for older homes, as they may be at a greater risk for certain types of perils... the great mystery of insurance right?

I will say that there are programs out there for investors that don't "discriminate" based on the age of the property, but base the rate simply on the combination of deductible, coverage amount, occupancy status, and coverage type (Basic or Special Form)...