All Forum Posts by: BreAnn Stephenson

I am late to the game here, but just wanted to agree with those who have said to not file a claim in this case.  $500 more is a small amount to pay out of pocket rather than risk premiums going up.  They might not drop you for your first small claim, but claims frequency is a big factor in determining renewal rates or if they choose to renew you at all.  We would rather see one large claim from an unavoidable cause (tree falling for ex.) than a string of small ones.

@Adam Johnson has a great point about shutting the water off.  If a property is going to be vacant for a significant period of time it is best to shut the water off at the street and drain the system.  Even if you are keeping the heat on to at least 55 degrees, it still could go off during a storm and cause pipes to freeze.  Pouring environmentally-safe anti-freeze down the drains and in toilet bowls and tanks can keep water remaining in the P-traps from freezing as well.

I do want to commend you for having your neighbors check on the property.  If you hadn't had them checking, you could have been in for even more damage.  It's always a good idea to have neighbors check on your properties, even if you aren't going to be out of town.  Encouraging tenants to form relationships with neighbors or introducing them to the neighborhood is also a great way to encourage the neighborhood to look out for one another.

Best of luck with your investing!

-BreAnn

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

That is exactly the thing we hate to see RJ... and so true. Be realistic about your needs in the event of a loss. Choose the highest deductible you can handle, but if carrying a $5K deductible is not realistic for you, choose the higher cost with the lower deductible.

As for whether you should insure under an Actual Cash Value basis or Replacement Cost depends on the kind of investment really. If it is the case that you would want to rebuild (or are doing new construction) then Replacement Cost might be the best choice. If, you got a steal of a deal and if it were to burn down you would simply clean up the lot and purchase something else down the block, Actual Cash Value might be a viable option. Bought the house at an auction for $2K? You may decide to only purchase liability coverage in case someone were to be injured.

The key really is finding an insurance adviser who understands the real estate mindset, can support your goals, and offer insurance solutions that will fit your specific business model. 

 Yes, always keep records of work done for each investment.  If you have an Actual Cash Value policy (ACV for short), the receipts will help determine the appropriate amount of depreciation that they subtract from a claims settlement.  If the adjuster doesn't know when something was replaced, even though they are typically pretty good at estimating, you may not get as much to replace an item as you should. For example, if the adjuster determines that he thinks the hardwoods were 20 years old, but you can prove that they were just put in 6 months ago... Not saying it would be that far off, but the more information you can give the insurance company, the faster and more accurate the settlement typically.

If you have a Replacement Cost policy (RC for short), depreciation will still be subtracted from the first check they give to you, but you can recoup that depreciation after the repairs are completed.

 Agree with Roman here... receipts for work done during the renovation process will be very important to making sure you are able to recoup what you have put into the property.

I think there's a duplicate post out there... sounds like your friend is on the right track, but here was my reply on the other thread just in case:

Hi Andrew!

First of all, so sorry to hear this. That is definitely one of the worst nightmares you can have as an investor. A couple of tips:

1. Your friend will definitely want to try to prevent further damage from happening immediately. In insurance terms, this is called "mitigating the loss." Be sure to take photos (or video can be good too) before touching anything, as the adjustor will want to be able to see what the damage was like before mitigating. Most insurance policies require that you as the insured do anything you can to prevent further loss from happening. See the "Duties in the Event of a Loss" section of the policy for specific details.

2. While you are mitigating, set aside damaged materials so that the adjustor will be able to see them... i.e. if you needed to pull up carpet, etc.

3. In this case, your friend will want to get things as dry as possible as soon as he can. Mold can easily grow in a very short amount of time. Obviously it grows more quickly in warmer conditions, but mold damage can get costly to remove and isn't always covered in insurance policies as Mold/Fungus is a standard exclusion in the industry. If it is included, coverage is often limited to $10,000.

4. After your friend has done some emergency "damage control" and he's got the dryers/fans going, he will want to call his agent. They will be able to give a summary of coverages, deductible, etc. and will be able to advise if your friend should file a claim.

5. Notice that I said "if" your friend should file a claim. It may not be wise if he has a $2500 deductible to file a $3000 claim, for example. Claims frequency is often more concerning to an insurer than one large claim. Insurance companies also tend to be more understanding of claims related to weather events (hail for ex.) than losses that are preventable.

6. Your friend will want to get a couple of estimates to repair the damages. Costs to mitigate the damage will can usually also be included in the total loss amount, but check the policy/check with the agent for specific coverages.

7. Sometimes no matter what you do, pipes will freeze, but many policies do include a stipulation that you do your best to maintain heat or drain the system completely in order to have the water damage from a burst pipe covered. (Your friend may be asked to back this up through documentation via a utility bill for ex.)

8. Water Damage is typically covered under policies that have a Broad Form or Special Form format and your friend's agent will be able to tell him if he has coverage for Water Damage. Basic Form policies do not contain coverage for Water Damage.

So...take photos/video, get started on drying the place out, and call his agent!

Again, so sorry to hear that your friend had this experience on his first flip, but I hope the above is helpful. Happy to help with additional questions too!

-BreAnn

Hi Andrew!

First of all, so sorry to hear this.  That is definitely one of the worst nightmares you can have as an investor. A couple of tips:

1. Your friend will definitely want to try to prevent further damage from happening immediately.  In insurance terms, this is called "mitigating the loss." Be sure to take photos (or video can be good too) before touching anything, as the adjustor will want to be able to see what the damage was like before mitigating.  Most insurance policies require that you as the insured do anything you can to prevent further loss from happening.  See the "Duties in the Event of a Loss" section of the policy for specific details.

2. While you are mitigating, set aside damaged materials so that the adjustor will be able to see them... i.e. if you needed to pull up carpet, etc.

3. In this case, your friend will want to get things as dry as possible as soon as he can.  Mold can easily grow in a very short amount of time.  Obviously it grows more quickly in warmer conditions, but mold damage can get costly to remove and isn't always covered in insurance policies as Mold/Fungus is a standard exclusion in the industry.  If it is included, coverage is often limited to $10,000.

4. After your friend has done some emergency "damage control" and he's got the dryers/fans going, he will want to call his agent. They will be able to give a summary of coverages, deductible, etc. and will be able to advise if your friend should file a claim. 

5. Notice that I said "if" your friend should file a claim. It may not be wise if he has a $2500 deductible to file a $3000 claim, for example. Claims frequency is often more concerning to an insurer than one large claim. Insurance companies also tend to be more understanding of claims related to weather events (hail for ex.) than losses that are preventable. 

6. Your friend will want to get a couple of estimates to repair the damages. Costs to mitigate the damage will can usually also be included in the total loss amount, but check the policy/check with the agent for specific coverages.

7. Sometimes no matter what you do, pipes will freeze, but many policies do include a stipulation that you do your best to maintain heat or drain the system completely in order to have the water damage from a burst pipe covered. (Your friend may be asked to back this up through documentation via a utility bill for ex.)

8. Water Damage is typically covered under policies that have a Broad Form or Special Form format and your friend's agent will be able to tell him if he has coverage for Water Damage.  Basic Form policies do not contain coverage for Water Damage.

So...take photos/video, get started on drying the place out, and call his agent!

Again, so sorry to hear that your friend had this experience on his first flip, but I hope the above is helpful.  Happy to help with additional questions too!

-BreAnn

Hi Kelly, I would agree with Lelith here.  It does depend on a variety of factors including what deductible you choose and what coverages are available for that area.  The Program I work with is structured a bit differently from the standard market, so another agent may want to weigh in, but in general there will be a need for more liability coverage in the least as you have a higher risk on that end with more people coming and going from the dwelling.  

Owner-occupied locations generally carry the lowest rate available, followed by occupied rentals, properties being renovated and vacant properties.  Cost does also increase with the additional liability risk as mentioned above. If are planning on living in one of the units, be sure that you have the appropriate coverage for your personal belongings, but also make sure you're not paying for covering the other tenants' "stuff."  They should obtain a renters' policy that both will cover their personal belongings and give you some protection for unintentional damage they cause as a result of a cooking fire or the like.

Hope that helps!

 Hi JT!  I would concur with all of Thomas' points here, especially the above.  It might be difficult to prove that the tenant was liable if the door did blow open again.  It seems that you both did what you could - you, by advising to shut the door and that you would be out to assess the situation/secure the property as soon as you are able and your tenant, by making sure the door is shut.  It could have blown open again or they could have been negligent...

That stated renters' insurance is very valuable for both your tenant and you.  If they were to be responsible for damage, you would then be able to first lean on their coverage to pay for damages before having to rely on your own coverage, keeping your claims history clean.  There are typically 5 common perils that are covered under renters' insurance: Theft, Fire and Smoke, Vandalism, Water Damage, and Liability.  They, of course, get coverage for their "stuff" if it gets damaged by one of the first 4 perils in the list.

Thomas also has a great point about texting his tenants when there is cold weather.  Humans in general are forgetful and your mind is much more focused on preserving your property than even your best tenant.  Many of the most common losses (fire, water damage from pipes bursting for ex.) are preventable and usually don't take a whole lot of effort to avoid.

Lastly, I would just say that documenting any conversations in regards to repairs you are planning to do when a situation like this arises is always best.  If you have to get either insurance company involved, the more documentation that you have on the specifics of the event, the better.  It will help them get to a resolution more quickly and any settlement will also be more accurate.

Hope that helps... happy to help with any other insurance issues or anything about preventing losses at your property.  Good luck! 

-BreAnn

Hi Marc,

First...not fun at all to have this happen! Many in your shoes have had frustrations with the way that insurance works in smaller claim situations given that the deductible can be close to what the loss is. Unfortunately, it all has to do with risk, and as many have shared on here, you never know what could happen to your property/properties.

Self-insuring is a great idea if you can afford to pay for smaller losses yourself... One question to ask yourself for sure is in the event of a total loss would you be able to cover your total investment yourself?

I may be a little biased as I'm an insurance agent, but we've seen many of our investors benefit from their policies in all types of losses from the smaller ones to total losses. Trading $2k/year for $100K in the event of a total loss could be a very helpful thing.

Insurance can at times be the difference between keeping your business alive or being "taken out."

That said, you do also want to make sure that you're not paying exhorbitant premiums too... There are a variety of different ways to insure your investment where you can choose the amount of insurance and types of perils you'd be covered for. Many investors like to do ACV policies for this very reason as they can insure for only their investment and not for "replacement cost" which can escalate the premium, but also will give you a greater payout in the event of a smaller loss...

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