The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: Reddleman on October 05, 2015, 10:06:58 AM
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I'm about to close on a couple of two family rental properties.
Just wondering what strategies you used to get the best insurance rates. It seems like most of the quotes I'm getting through online sources quote full replacement costs (over $300k) when the actual price of the property is well under $100k each.
Any tips?
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I know many people dislike this, but when i was shopping for insurance the mom and pop insurance places around town were way cheaper than the national guys, i signed up through them to save a few thousand a year and placed the difference in a savings account just in case..
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You, ultimately, are responsible for deciding what level of coverage, and with what deductibles, you purchase beyond any minimum defined by your mortgage. I insure with a slightly higher liability (which generally adds little to the annual deductible) coverage than average and for the purchase price of the property, but have the deductible increased somewhat to make the price palatable to me. You are not, generally speaking, obliged to insure at the current replacement cost. Your lender will likely insist on coverage at least to the financed amount, and your property manager may require a certain level of liability coverage, so satisfy those minimums.
Call and speak to a human, and be cognizant that they are unlikely to volunteer the fact that you can opt for a higher deductible or lower level of coverage, but they'll provide it when you ask.
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You need to find an insurance broker that is accustomed to dealing with real estate investors. You should be able to pick the coverage you want and if you want to have based on actual price then you should.
I contact at least 2 companies and compare and I pick the companies based on referrals from other investors in that city.
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I've found reasonable rates with nationwide even including earthquake insurance. Hopefully they come through if I need them. That said, I'm considering dropping the earthquake coverage, since my rental properties allow me to deduct losses up to 25K a year (if I manage to reduce my taxable income enough via tax shelters to qualify again) and carry losses forward from year to year until all losses are deducted. At least that is my understanding. Maybe Cathy will see this and chime in with some case law. :-)
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If you have a loan, then the house needs to be fully insured. If the house cost 100K, but the replacement value is 200K, you need an insurance policy for 200K.
For my Colorado rental, I have Safeco. The replacement value of the house is $230,000. I have a $5,000 deductible and my rate is $675/year for a landlord policy.
For my Florida rental, I have United Casualty Insurance. The replacement value is $215,000. I have a $2,500 deductible and my rate is $890/year for a landlord policy. In Florida, there is also a standard 2% hurricane policy. If I was to make a claim on hurricane damage I would have to pay 2% of 215,000, which is $4,300.
I would try to get a $5000 deductible and then always make sure that you have at least $5,000 in the bank for each property is disaster strikes.
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The 2% isn't too bad, what company if I may ask? Nationwide as well as other companies in this the Seattle area, charge a 25% earthquake deductible. So on a 350K home...you're really screwed. Another reason to leave Seattle in the coming years.