Investors: Be Smart About Your Property Insurance

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Property Insurance is one of those nuisance expenses you always see calculated into mortgage payments and cash flow projections. It’s the second “I” in the acronym “PITI” (Principle, Interest, Taxes, Insurance), which most investors use to describe an overall monthly obligation on a property.  While unexciting and usually begrudgingly paid, I would argue that property insurance is one of the most important components in a real estate transaction.  Interestingly, I have found that even the most meticulous investors often pay little attention to the price and coverage of an insurance policy … perhaps assuming that all policies and carriers are alike.  I can assure you after working with numerous insurance agents and carriers over the years, this is definitely not the case.

While I have seen insurance agents bind policies for investors at $900/yr, I’ve seen almost identical policies on similar properties with premiums of $500/yr. At a difference of $400 dollars a year, an investor could potentially give up a large portion of their monthly cash flow simply because they bound a policy without shopping around first. I’ve found that different insurance agents have relationships with different carriers, and as such, have different programs to offer. I’ve also found that many insurance companies are not particularly interested in landlord policies and either don’t offer them at all, or price them less competitively than other carriers who may be more comfortable with this line of business.

In many cases, insurance agents quote a higher premium assuming an investor wants a higher level of coverage. For example, the investor may have a policy with a lower deductible or additional coverages such as contents, rent loss, etc.  As an investor, it is very important to weigh the cost and benefits of paying extra premium (and sacrificing cash flow) for these types of enhancements to the policy.  While there is not a right or wrong answer, the important questions to ask are:

  • Is this policy competitively priced considering the coverages and deductible?
  • What level of insurance do I need to feel comfortable while not sacrificing an unnecessary amount of cash flow in the process.

Finding a good insurance agent is critical for any real estate investor.   I encourage investors to shop around and get referrals from other investors before buying an insurance policy. Make sure you are not over-insuring and/or overpaying for your policy. Getting quotes from multiple companies will help you develop a framework for understanding how much you should be paying for insurance. In addition, by speaking to multiple insurers, you may find opportunities to save even more by bundling insurance (i.e. auto and property), association discounts (i.e. military or professional associations), safety discounts (smoke alarms, monitored alarms systems), etc.

As always, it comes back to educating yourself in all aspects of a real estate investment. Property insurance is just another facet to this business that should not be taken for granted.  Cash Flow margins are already skinny enough without overpaying for property insurance. Take the time to put the right coverage in place that strikes the balance between peace of mind and profitability!

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

12 Comments

  1. Hey Ken — A lesson I personally learned the hard way was how insurance firms adjust premiums to adjust an perceived imbalance in their ‘portfolio’. I remember a year when State Farm slaughtered Farmers when it came to my clients’ property insurance. The very next year Farmers’ quotes began to undercut State Farm.

    They don’t like to be ‘heavy’ in auto or any other type insurance. When they are, the premiums are often raised, while simultaneously wherever they perceive the portfolio is ‘light’, premiums are reduced.

    Make sense?

  2. So I guess the old adage about getting fresh quotes on your insurance every few years really rings true. Thanks Jeff for reminding us that insurance companies are there to make profits for themselves, and once again, it is our responsibility to look out for own best interests.

  3. I have 3 rentals and my residence. I shopped around and found that, for my circumstances, Amica gave me the best price if I insured everything (cars, residence, rentals, umbrella) with them. I elected to take on high deductibles to lower my bill even further. I’m a DIY, so I figured I can handle the small stuff.

  4. Please remember insurance isn’t only about price. A low premium definitely helps the bottom line, but a claim that isn’t covered because you opted for a basic policy to keep the price low may kill your bottom line. You have to find a balance between insurance coverage, premium, and the amount of risk you are willing to take. Shop around, there are insurance agents like me that work very hard on getting appoionted with insurance companies that will give low rates and great coverage and who know what landlords need and want.

  5. Alex SImon

    Very frustrated with trying to learn about insurance. Everywhere I look, people are saying “Be sure you have the right insurance,” but like this article nobody ever lays out exactly what types of policies you need for the different niches of REI.

  6. Joe Burns

    Quick question! Is it necessary to disclose that the property is an investment property and will be rented?
    As you mentioned in the article insurance companies will assume I want extra coverages.

    I only ask because I was just quoted 167 a month! (2000$) I let the agent know it was an investment.

    I understand that every area is different but are there certain guidelines that you follow when insuring the house? Such as certain amounts of coverage that you require and coverage that you think exceeds your needs.

    I definitely will be asking around for recommended insurance agents but I’d just like to get a mental picture!

    Thanks for the article!

    • The answer is probably “yes”. I once had to change insurance companies because my agent forgot to ask “is this a secondary home” on our vacation property. Agent later called me, having discovered this, and told me the current underwriter doesn’t do vacation homes, and went out to find another policy.

      Definitely an area where I relish having an independent agent that can shop the market on your behalf and not stick to one company.

      In short, because there are so many ins and outs in the insurance market, like your lawyer, you need to find an agent with whom you can share the whole story so they can find the best product at the best price on your behalf (in your property’s state).

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