All Forum Posts by: John Mocker

Michael,

Although I do not recommend it, if you can not afford the Replacement Cost coverage, there are some companies that offer to insure the Buildings on ACV (actual cash value).  ACV is Replacement cost minus depreciation.   The problems you get when you use ACV are:

 1.  they deduct for depreciation on partial losses

 2. you will not have enough to rebuild in a total loss. 

One thing to beware of, some of the policies that are written on ACV are for coverage that is less than "Special Form".   That refers to what things are covered. 

Okey,   One thing you should check into is the Insurance on the property.  We represent over 2 dozen different carriers and the ones that write 3 families all will not write student housing.   If that is the case with your policy, you need to know the cost to cover it with students.   If you are told that you do not have to disclose that fact, you should consult an attorney that is familiar with Insurance law  to be sure.   I would still get the quotes for the coverage with students so you know what will happen if you have to change carriers. 

Before you decide to charge per room, you should explore what that will do to the Insurance rates.  As with Student rentals, rooming houses are a problem and generally a higher rate.

Regardless of whether you have to get a new policy, I would recommend increasing your deductible and using the savings to fund small repairs.  The worst thing you want is to have multiple claims in this situation.   The advise about getting the tenants to buy renters Insurance and to have their parents co-sign are both good ones.

Chad,

Each company varies on the number of rental units they allow on their umbrella.  Because of that, we became agents for PersonalUmbrella.com over a decade ago.  They write stand-alone (they don't have to write the home or auto policy).  They also allow for up to 30 units in CT.   They do not currently write in LA but if you property is out of state they could be a good choice.  If this is for LA you should contact an independent agent with a large number of markets or several with different markets.   They can tell you if there is a company to write all of your business including the umbrella.   If that does not work, they can approach the specialty/excess market and get you a quote.

For the rental properties, at minimum you should have:

1.  Building Coverage:   if available, get Special Form (sometimes called "All Risk") and the coverage should

    be Replacement Cost coverage.

2. Contents Coverage:  If you are renting the units with Appliances, Furniture, etc.  you need to cover the value of those

     items.  the coverage should also be at Replacement cost.  The most common level of coverage is "named perils" which

     is not as good as "special form".  Some companies will quote both.

3. Loss of Rents/Income:   Make sure the coverage is enough for 12 mos of rental income

4. Liability:  I recommend maximizing the coverage under the policy (that would be $500,000 or $1,000,000 for

    most polciies.   I normally recommend an Umbrella policy as well.  That can give additional coverage if the the

    liability limits of the underlying policy get exhausted.  The Umbrellas are normally written in $1,000,000

    increments for the limits.   If "personal injury" is an available option I would recommend it.  It provides coverage

    against claims of Libel, Slander, wrongful imprisonment, etc.

Depending on the details of the property (age, construction, etc.) there may be other coverages that would be recommended.   For example, if the house is on a non-conforming lot or the building ordinances have changed and you would not be able to build the same way if it burned down, you should look at the optional coverage "Ordiance & Law".

Good luck on your search.  Feel free to PM if you have any additional questions

Joe,

Check to see if American Modern Home or Foremost writes in CA.  If so, they seem to have more lenient guidelines on losses on the rental dwellings.  You should contact an independent agent, preferably one with many markets.  Its likely  you will need to have the home and the rental dwelling in different companies to get the best price/coverage.   

Matt,

Congrats on getting the new Home.  Because it is owner occupied the proper Insurance policy is a Homeowners.  The limit needed for the Building should be the Replacement Cost of the Building.   That is the cost to rebuild the structure with the same kind and quality materials from the foundation up.  Each company has their own program to calculate it so don't worry if the value varies in different companies.  There are different types of coverage for replacement cost:

  - Replacement Cost (policy limit is the max. they will pay)

  - Replacement Cost + 25% or 50% (the company will pay up to 125% or 150% of the policy limit if needed)

  - Guaranteed Replacement cost (the company will pay what it takes to replace the building regardless of the limit)

Of the three, Guaranteed RC (Replacement Cost) is the best option but many companies don't offer it.  The Building Coverage should be "Special Form" also called "All Risk".  There are some optional coverage you should consider:

   - Backup of Sewers & Drains

   - Ordinance & Law (especially for older homes)

The other coverage on a Homeowners policy includes:

    Contents

       most policies include 50% of the Building limit automatically for Contents.  That Limit can be increased if

       needed.  Make sure you get Replacement Cost coverage.  The other option, Actual Cash Value results in a

       much lower payout in the case of a claim

    Loss of Use/Rental Value

       Most homeowners policies will include 20% of the Building limit for Loss of Use automatically. 

    Other Structures

       Most homeowners policies will include 10% of the Building limit for Other Structures (detached buildings

       such as garage or shed) automatically. 

    Liability

       Most homeowners policies can be written with up to $500,000 in Personal Liability.  I recommend maxing that

       Limit and considering an Umbrella policy for at least an Additional $1,000,000 in Liability.  One optional

       coverage that many of my clients purchase is Personal Injury Liability (protection for Libel, Slander, etc..)

Ideally you want an Agent that can quote many companies to find the best solution for you. Recommendations from others in the REI community would be helpful if you are planning on additional purchases.

Edward,

You mentioned that both building are on the same parcel.  The fact that the mailing address is different for the buildings may not be an issue.  Generally our companies look at it as the same property if it is on the same parcel.   You may be able to show this on the deed or the Tax Assessors card.  

The other thing that you should look at, is the coverage for the 3 family + garage the same if you insure it as the "other structure".   The coverage for "other Structures" is a separate coverage from the Building coverage and may not be equal.  If so, you may have to add an endorsement to "other structure" coverage for the rental units.

It may be better to write two policies with the same company.  First would be a Dwelling/Fire policy for one of the houses with Liability coverage.  The Second policy would also be a Dwelling/Fire policy but without Liability.  It would require the agreement of the Underwriter at the company.  I have a couple of these situations in CT.  

If you can't find coverage locally, PM me and I will see if any of our carriers can recommend someone.

Janice,

Some but not all companies we deal with set limits for the distance an owner can be from the property. You should be able to find a company that will do it. I looked at the CT guidelines for two of our carriers that write in VA also, one would do it and one would require that the underwriter review it. If you have problems locating coverage, PM me.

Angad,

You were not getting ripped off by the brokers you were dealing with.  Policy rates have to be filed by the company with the State Insurance department in that state.   The agents were probably offering the best that they had available.  State Farm only deals through their own agents so it would not have been available to an Independent agent.

It could be that State Farm is that much cheaper or it could be that they are not providing the same level of coverage for the property.   Dwelling Fire Policies usually come in a range from Fire (least) - Fire, Extended coverage & Vandalism and Malicious Mischief (good) - Special Perils (best coverage).  If you were getting Special coverage prior and now are getting just Fire that could account for some of the difference.   Check the deductibles, coverage for loss or rental income, other structures, to see that the coverage matches as well.

The Company may also be pricing to gain market share.  If so, they will probably be back to the $900 range in a couple of years.  

Tyler,

The first thing to do is contact your agent for your policy.  Find out if there is an exclusion for the rental.  If there is not coverage, the agent will need to check for coverage.  If you were just converting from an owned situation to fully rented the answer is easy.  You would convert the policy to a dwelling/fire form.  If you are renting it out part of the time and living there the rest of the time there is not a specific form.   We have a couple of markets that insure rented condos on the same form as owned units.  I will check with them and see if they can do the Airbnb situation.

Melissa,

Here's is some general info that I sent to a new client who was looking for properties. It may be helpful.

The things to watch out for/avoid from an Insurance perspective are:

1. Homes with Underground tanks (in use or not)

2. Homes with Lead Paint

3. Homes with Knob & Tube or Aluminum Wiring (even if you can't see it in basement or attic have your electrician check to see if it's still in the walls)

4. Homes with Fuses or less than 100 amp service

5. Homes with Flat Roofs

6. Homes with Pools that are not fenced or that have diving boards or slides

7. Homes with prior losses (they will show up under a CLUE report of the prior claims).

   May not be a problem if the issue was addressed or if it was from a "Catastrophic" loss

   such as a hurricane

8. Homes with EFIS (type of spray on siding) or Asbestos shingles or siding

9. Homes with Polybutylene Plumbing

10. Student rental:  If you are renting to students you may have a problem getting coverage.

Other factors that will impact the rates:

1. Age (newer construction will often get rate credits)

2. Renovation of Systems

     - Heating

     - Plumbing

     - Electrical

     - Roof

Complete updates are better but partial updates help. Within 20 years.

3. Distance to the coast (closer to the water the less options I have)

    - over a mile is normally not a problem

    - under 1500 ft can be a problem

4. Alarms: Central Station monitored alarms will give credits

5. Animals:  For either you or for your the tenants, certain breeds of dogs will cause the

                    companies to not write you Any bite history for any type of dog will also

                    cause them to decline.

6. Other factors that lead to credits with some companies

     - Insurance Score (based on info from your credit report)

     - prior insurance (how long you were with a company)

     - education level

     - other insurance with the company (auto, life, boat, etc.)