In this episode of the High Return Real Estate Show Jeff Schechter, Jack Gibson, and special guest Man Phung discuss how to understand and take advantage of property insurance.
- How did you get into this line of work?
- What is the difference between replacement coverage and ensuring the actual price paid?
- Does it make sense to always have replacement coverage?
- What does the term modified replacement mean?
- What do you think about covering a vacant property?
- What’s wrong with self-insurance?
- What constitutes a claim?
- What happens to someone who makes a high number of claims?
- What is the difference between a broker and an agent that represents one company?
Key Lessons Learned:
- Replacement coverage covers the cost of fully rebuilding the home in today’s dollars. Price coverage only reimburses the price you paid and not the replacement expense. There are a lot of variables that go into how much the insurance costs but the difference is often pretty minimal.
- Having replacement insurance is often the better choice, but it will depend on what you would do in a rebuild scenario and the premium increase involved and your risk tolerance.
- Replacement coverage can also cover the loss of rent in the case of the house being rebuilt.
- We are in a culture where we tend to sue each other quite often, in the case of a renter’s injury you can also be covered.
- Insurance is about protecting an asset that is producing cash for you and protecting yourself against loss.
- Modified replacement coverage focuses on rebuilding the house with similar materials in the case where the original material is no longer available or prohibitively expensive.
- A vacancy is any length of time over 90 days. Vacant coverage is about covering theft and vandalism for various lengths of time. Regular coverage will not cover a vacant property if it’s empty more than 90 days which is when vacancy coverage would make sense. Turnkey real estate usually doesn’t have to worry about prolonged periods of vacancy.
- Self-insurance is an option but won’t cover you in the cases of catastrophic loss. Is it worth it to you to take that risk?
- Insurance is for a catastrophic loss. If you can afford to pay for it out of pocket you probably should.
- Making a higher number of claims can lead to non-renewal of your insurance and make it harder for you to get insurance in general since you become a higher risk to the company.
- Look at the cost of repair versus the deductible.
- Making a large number of claims can impact your ability to buy insurance for the next three to five years. For some companies making more than one claim can be enough to not renew.
Brokers vs. Agents
- A broker can shop around for the coverage you need for the price you want.
- Brokers give you more options than agents can.
- Oftentimes, a broker will proactively monitor your policy to make sure you’re getting the best deal on protecting your property.
- Brokers fit into the passive income model really well.