Author Topic: Frugal with Insurance  (Read 1921 times)

yddeyma

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Frugal with Insurance
« on: December 03, 2014, 07:44:44 PM »
I've got a question about property insurance.  For years I bought into the panic the media spreads and had WAYYYYY too much insurance in every area: auto, health, disability, life, homeowners, etc.  I have been slowly lowering my coverage as I reevaluate what I really need.  My homeowners policy is the last one to get looked at, and it just so happens I have rentals to consider, too.

I've recently purchased 3 properties to use as rentals.  All single family detached and circa 1970ish.  They cost between 50-60k each.  I've been shopping around this week to see if I can find cheaper rates for insurance; I pay 475-575 per property.  The homeowners policies I've been quoted all include "replacement" value, which is upwards of $150k for each property!!!!! 

I already have the highest deductible possible.  I'm wondering if I should ask for a lower value to be insured, say, only the fair market value.  My theory is that if the house burns to the ground, i won't need to rebuild it because there are plenty of other properties I could potentially buy at the same price.  My only hesitation is that I would still be stuck with the lot, removing any "unsafe conditions" from it per the city rules (can't leave a half burned up house and this would eat up my insurance payout) and I would still owe property taxes on the lot.  I have not seen ANY lots for sale in these neighborhoods, which are all a bit older.  In my area, most folks build brand new houses rather than buy the older ones, making these neighborhoods not quite as desirable.  So I'm not really sure if I could manage to sell the lot as a standalone or not, leaving me with a potentially indefinite property tax bill.  I mean, who would built a $150k house in a $60k neighborhood?  One's a decent neighborhood, the other two are not quite as desirable but still safe. 

All that said, these are nice older houses.  Hardwood floors, tiled baths, etc.  Typical of that era.  If I had to rebuild, I wouldn't necessarily put those types of upgrades in, I'd do all linoleum and cheap stuff since its a rental, which could potentially lower my rebuild cost.

The other way to really lower cost is to lower my liability coverage, currently at $1M for each property.  The reason I originally set it so high is that I own the homes in the name of an LLC, for a variety of reasons, but could not find cheap business insurance (of the few companies I could get to actually quote umbrella liability for a small business, $2500/year was the best price and it only covered $500k).  I looked into lowering the homeowner liability and getting a personal umbrella policy, but the companies I asked said that a personal umbrella policy would not cover issues that arise from the business, even if I am sued personally in addition to the business (which makes me wonder what the point of personal umbrella insurance is).

So, how much do you cover your rental properties and your personal home?  Any tips?
« Last Edit: December 03, 2014, 07:51:29 PM by A.Engineer »

data.Damnation

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Re: Frugal with Insurance
« Reply #1 on: December 03, 2014, 07:49:10 PM »
You might be better off posting this in the real estate and landlording forum. In my experience, insurance companies will only insure the replacement value of rental properties, not fair market value.

If you want to save money on your premium, increase the deductible. I have a $2k deductible for my homeowner's insurance and it saves me 20% on my premiums versus the default $500 deductible. I can easily afford $2k of damage if something were to happen, and if I had any damage <= $2k then I wouldn't file a claim anyways.

yddeyma

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Re: Frugal with Insurance
« Reply #2 on: December 03, 2014, 07:52:09 PM »
Okay, I'll link it there.  I already have a $5k deductible, they won't raise it any higher than that.

Beric01

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Re: Frugal with Insurance
« Reply #3 on: December 03, 2014, 08:06:22 PM »
Okay, I'll link it there.  I already have a $5k deductible, they won't raise it any higher than that.

Sounds right! The point of any type of insurance is only to protect you from a loss that you can't afford. Most any Mustachian (that didn't just start saving) can afford $5K, so it's a perfectly fine deductible (though even higher would probably be nice). Unless you're an increased risk that only you know about, then always do the highest deductible you can afford.

alpharomeo

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Re: Frugal with Insurance
« Reply #4 on: December 03, 2014, 08:12:42 PM »
One thing you need to be aware of is that the intent of property insurance is to not cover it for market value, but the cost to rebuild that home.  Think about the home you could pick up in Detroit for 20k, it would cost way more than that to rebuild the home.  A lot of insurance contracts have a coinsurance clause which requires you to insure for at least 80% of replacement cost otherwise coverage can be jeopardized.