With property and liability rates continuing to rise after several years of costly catastrophes, not to mention the current financial challenges of the COVID-19 pandemic, investment property owners are likely looking for ways to control insurance costs and maximize ROI.
So, how do you control your insurance costs without jeopardizing coverage?
Shop your rates with multiple carriers
Work with an independent agent that is contracted with several carriers and programs AND understands your unique needs as an investor.
This allows your property to be considered by several different carriers that may have a very different approach to the risk in question. Carefully review the differences between the cost options presented to you, as cheaper is not always better. Know what is and is not covered, and what you are giving up for a lower rate. Never jeopardize peace of mind to save a few bucks.
Be sure you know what type of loss settlement method you will be subject to in the event of a loss – Replacement Cost or Actual Cash Value. Replacement Cost can be a 20-25% higher rate but provides you the opportunity to recover depreciation. Consider your plan for the property in the event of a total loss. If you would choose not to rebuild, you would be overpaying with Replacement Cost coverage. Just be sure you are adhering to any requirements from your lending institution.
Consider a higher deductible
Your deductible is the amount you are comfortable self-insuring.
And the higher your deductible, the lower your insurance rate. Increasing your property deductible from $1,000 to $5,000 could save you as much as 25%.
For a good gauge on the deductible you may be comfortable with, consider the minimum claim you would turn in, then double it. Look also at opportunities to increase the deductible on certain perils, such as Wind/Hail or Water Damage, especially if you have past claims for these types of losses.
Carefully consider what claims you file. A property claim (regardless of size) can increase your premium for as much as five years following a loss. This means you may pay more in increased premiums over time than you would by just paying out-of-pocket for a $500 or $1,000 loss.
Make your property more resistant to a loss
By properly managing your investment properties you may be able to avoid preventable losses and demonstrate to your insurer that you are serious about risk management.
Many carriers will provide credits on their rates for working hardwired smoke detectors, central station burglar alarms and sprinkler systems. Install Carbon Monoxide detectors and fire extinguishers. Upgrade old electrical systems, furnace, and HVACs.
Be sure that you or your property manager are regularly visiting the property to perform routine inspections and maintenance.
Where not to cut corners
While property damage represents more controllable or “known” expenses, do not skimp on Liability coverage, where potential losses are unknown.
Carry as much as you can afford, with a minimum of $1,000,000 per occurrence and $2,000,000 aggregate annually. Lower limits save little money and can leave you and your business dangerously exposed in the event of a serious liability suit.
If your policy has co-insurance, don’t be tempted to insure your property to a lower value to save on premium. This can come back to bite you in a loss.
What other coverage you should consider
Cyber crimes like social engineering, hacking and wire fraud increasingly target small and mid-size businesses.
As a landlord or property manager, you are exposed to cyber risk every time you send or receive an email, collect rent online, or use an online tenant screening tool. Cyber insurance can provide coverage for the cost to respond and recover from a data breach.
Following the 9/11 attacks, insurers increasingly began excluding acts of terrorism from a standard commercial insurance policy. If you own a large number of properties in a concentrated geographic area, standalone Terrorism coverage to fill this gap may be a consideration for you.
Depending on the location of your rental properties, consider additional endorsements for excluded natural disasters. Flooding is the number one natural disaster risk in the United States; and the risk is increasing. Earthquakes and sinkholes are also excluded perils you may consider a separate policy for, though not always available in all states.
Now is the time to work with your agent and take all necessary measures you can to control your insurance costs.
National Real Estate Insurance Group is a national, independent insurance agency, offering the largest Insurance Program in the country built specifically to meet the needs of rental property owners and their property managers. The Program allows investors or their property managers to manage property and liability insurance for portfolios of any size, on one or multiple accounts, on the same schedule, with monthly reporting and payment options. To get your no obligation proposal, visit nreig.com/rentalhousingjournal or call 887-741-8454.
