Insurance is one of those pieces of being a landlord that can make you pull your hair out.
It starts off easy enough. When you purchase your first couple of rental properties getting insurance is generally no problem.
Often you can go to the agent that provides your homeowners or automobile policy and get coverage for a reasonable price.
Things begin to change however as you build your portfolio. Once you acquire four, five or more properties you really do not fit the mold anymore, and you begin to be seen as a risk. It is at this point that insurance problems begin to arise.
Suddenly, without ever filing a claim your rates double. Or, even better, you get the notice that the company is dropping your coverage. I once had a company drop me only 10 days after I closed!
The insurance companies often do not make the process of finding, maintaining and keeping it simple. There are unfortunately no easy insurance answers. There are however several pointers that I can give based upon my experience in the business.
1. Never, ever make a claim
The only time you want to make a claim is if it is a total loss or catastrophe. You can sometimes claim minor repairs and damages, but I would strongly advise you against it. Every claim you make is a mark against you.
It stays on your record for years just like a credit report. After too many claims you get jacked up rates or dropped. It is much better in the long run to absorb the minor damage and repair costs.
2. Find an agent or broker you can trust and who understands your business
This will not likely be with the major carriers nor will it be easy. Look to your local REIA or other landlords for suggestions. Sometimes going to a broker who can shop your properties to many different companies can be advantageous.
3. Never call the 1-800 number, even if just asking for information
Doing so could be counted as a claim against you even if you do not have one. Instead find an agent you trust and discuss any issues or matters with them “off the record” so to speak before calling or making a claim.
4. Use a high deductible to keep costs down
You are not going to be making claims anyway, so why not have a $5,000 deductible? Check with your lender however as they may not allow such a large deductible amount.
5. Have enough coverage to get the bank or other lender out of the way and the property cleared if something major happens
This method is usually cheaper than full replacement cost. If a disaster happens, you can pay off the bank, clear the lot and start over from that point.
6. Get liability insurance not just property insurance
As a landlord you need to protect yourself from lawsuits. If someone slips and falls, you will need this type of insurance. Increase the coverage amounts as your portfolio grows.
7. Keep your properties well maintained
You never know when an insurance inspector is looking around looking for a way to drop your coverage.
8. Meet with your agent every once in a while
Do not assume things are on autopilot. They are not. Insurance is something you need to keep up with. Read every notice you get and be sure you understand it. Plus your insurance agent can be a big help to you if you ever need it. Build up a good business rapport.
9. Package all of your insurance needs with one company to save money
For example, you can try to place your car, personal home, liability coverage and investment property coverage all with the same company. Insurance companies like policy bundles.
10. Never ever make a claim unless it is truly a disaster
I know I already said that. But I felt it was important enough to mention again.
Insurance is one of those things many of us must have and/or want to have in order to protect ourselves and our investments. Just be warned going in to this business, insurance can really try your patience.
What are your experiences with insurance as a real estate investor? Please share in the comments
Photo Credit: Anthony Quintano