We find that the acceptability of a quote generally depends upon what investors want and how insurance fits in your investment strategy:
- Low prices to cover only the extremely low market values and therefore just your initial investment, so that you can maximize cash flow with not too much attention being paid to insurance protection (just enough to “get in” is what we often hear). In these cases, we are advised by investors that they’ll just scrape the pad if there is a total loss. And, that may work to preserve your initial cash investment, although it can create issues with partial loss claims and with your increased equity position.
- Or, a policy that will replace the property and maintain the potentially lost rent up to a year, if it takes that long to rebuild following a partial or total loss. Often, these types of policies end up bettering the construction quality of the property through the Building Code Upgrade form (Ordinance or Law endorsement) that we provide to pay for building code upgrades as required by the municipality, following an insured loss (fire, etc.). Thus, the reconstruction is paid for in its entirety; not partially, as happens in these other types of policies; your equity as well as your cash flow & your initial investment are therefore preserved following an insured loss.
It’s not a bad strategy to just insure these properties for their market value if your strategy is short-term. Yet, if your strategy is to “buy & hold”, insuring the market value only (or just above it) is not a good idea in most instances. You increase the risk of losing thousands of dollars in your investment if you sustain a severe wind or fire loss.
So, those are usually the prime differences between the better policies, such as those provided by Safeco & ASI (American Strategic Insurance) and those of other companies, as respects the property side of the contract.
Also a significant part of pricing is
- the reported claims activity for a particular property,
- the age of the property,
- upgrades to the property (new roofs, updated electrical, etc.), and
- an investor’s insurance score (outside of California).
Just last week, we placed insurance for an 1800 square foot home in Memphis, Tennessee, in force for under $700 a year. In the Memphis area – and Tennessee in general, this is an outstanding premium. This person had an outstanding credit score, and the property was only about 13 years old.
Having said all of that, there are dozens of insurance companies which offer this specific type of insurance. Some are better than others; some have embedded liability and property exclusions that can leave you holding the bag in a claim.
Landlord Insurance is definitely not a commodity purchase – this isn’t Bleach.
There is a lot of protection that is given, limited, or excluded with these policies; few policies are effectively the same. The better insurers – such as ASI and Safeco – each have their bells and whistles that may make them look better than the competition. Our Safeco and ASI policies, offered in many states including Georgia, Texas, Arizona, Florida, and Indiana, have the most protection; and, when compared against other forms, they are generally preferred by investors.
How do I know what the savvy investors prefer? Our clients make the informed choice, generally choosing the better coverage, once the differences are understood. And, we write thousands of these policies. ‘Nuff said!
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