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Homebuyers are finding tougher guidelines and higher premiums from insurance carriers, and there certainly aren’t any bargains for sellers who need to move or would simply like a change of scenery.
Due to the economic slowdown, real estate values in many places in the country have dropped. As a result, some of our clients have asked whether they should reduce their property insurance limits to mirror the drop.
If you have replacement cost coverage on your buildings, signs, contents, etc., you probably should not lower your property insurance limits. In 2008, despite the economic issues faced by the country, costs to rebuild actually increased according to the Insurance Services Office. Because replacement costs are primarily driven by estimated rebuilding costs, it’s important to leave the insured value either where it is or increase it to today’s actual replacement cost. During the storms of 2008, we found many more of our clients to be underinsured, than overinsured.
If you have actual cash value coverage on your buildings, signs, contents, etc., you may want to consider lower your insured values. Actual cash value coverage covers the depreciated cost of your property. One more year of depreciation on top of a time of deflated values may mean that lower insurance limits make sense.
As a general rule, you should carry replacement cost coverage when (1) you have a building newer than 20 years, (2) you want/need to rebuild or repair the building if it is damaged, and/or if (3) your lender demands replacement cost coverage – most lenders do.
You should consider actual cash value coverage when (1) you have a building older than 20 years, (2) you do not want/need to rebuild it if it is damaged, and (3) if there are no interest holders such as minority partners or lenders who demand replacement cost coverage.
Karie Martin is Senior Account Manager with Mobile Insurance Agency in Woodlands, Texas.
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We’ve brought you dozens of money saving tips over the year. Here’s a countdown of some of the best technology and money making ideas of 2008, so you can save even more in 2009:To subscribe to our blog, click here.
While every dollar saved on insurance costs is a Net Operating Income dollar that can find its way back into a property’s bottom line, multifamily owners should remember that a low premium does not necessarily equal a good deal. To learn more, contact Commercial Insurance Solutions
See a related feature, Over-insuring is Killing Your Profits.
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by Bill and Kevin Burnett, Inman News Q: I read your column on earthquake preparedness. And although I don’t think our 11-year-old house needs structural changes, I was wondering if you have any advice on whether to buy earthquake insurance. We are new to the area, so we have no experience or feel for it. A: Your question is a little far afield for our do-it-yourself column. But it’s a subject we’ve had to consider over the years, and, as you mention, we have addressed earthquake preparedness from a structural perspective. We’re both 40-plus-year residents of the San Francisco Bay Area — earthquake country — and have lived through our share of shakers. We’ve seen pictures rattle and chandeliers swing. We’ve owned homes and income property and have had to grapple with the same question: to insure or not to insure against the Big One. Here’s our take today.
“For investors with a portfolio of properties, greater opportunities exist to save on premiums, and thereby increase your investment income, by purchasing insurance on the portfolio, just like insurance carriers do on their portfolios as a whole,” according to Patrick Nugent, CCIM, JD with Commercial Insurance Solutions in Dallas.
For example, take an owner who has a $500 million portfolio that includes properties in California, Texas, and Florida. The highest valued property does not exceed $30 million, but $50 million of the portfolio properties are in a concentrated area of California.
How One Landlord Saved $86,000 in Premiums
Insuring the Market Value Wastes Your Money
“What property owners need to understand it that there’s a big difference between market value that lenders use and the replacement cost carriers use,” says Patrick Nugent, CCIM, JD, with Commercial Insurance Solutions out of Dallas.
”A property insurance policy is intended to make an insured whole and will not act as a profit center.”
With that in mind, Nugent recommends that a property owner take a hard look at the insurable values with an eye toward replacement costs because this will lower premiums. (more…)
by Ilyce Glick, Inman News
The number of foreclosures has doubled since last year. That means a lot of former homeowners are now looking for a new place to hang their hats.
Many former owners are becoming renters again for the first time in a long time. And there are new lessons to learn: You’re not quite the master of your own domain, because you merely lease the property instead of owning it. You have to live by the landlord’s or building’s rules and regulations. And, you have to remember to change your insurance coverage. (more…)
by Mina V. Garrey, Commercial Capital Properties
Just recently I was reading through one of my residential leases to make sure that every paragraph is up to date and to see if there is anything I need to include due to changes and updates of local rental laws.
I came across the paragraph talking about Renter’s Insurance and it made me wonder how many of my tenant actually have this type of insurance coverage.
I know that when a Lease is signed, I make sure to point that out to the prospective tenant and go over the importance of having the insurance. At the end of the day however, people can choose whether they are going to purchase the coverage. (more…)
by Janet Portman
Q: I manage a single-family home for an out-of-state owner. A branch from a tree on the front lawn fell on the tenant’s car, which was properly parked in the driveway. The owner’s insurance carrier refused to pay for the damage to the tenant’s car, claiming no damage was done to the actual home. So, the tenant had the work done on her own, and filed a claim with her car insurance company, who paid the bill ($3,000) except for the $1,000 deductible. She wants the owner to cover the deductible, and I agree. What do you think? –Will G.
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