In today’s episode, we are diving into a topic that could save you hundreds, maybe even thousands, each year: how to reduce your property insurance premium.
With return guest Jason Jones, we’ll explore practical strategies to cut down your premium without sacrificing the coverage you need. Remember, even small steps can lead to significant savings over time. Let’s get started!
What influences insurance premiums?
You have a few things that are significant in establishing what the premiums are. First, the property value. That’s where the more expensive the property, say your California or Florida properties, the more costly it is to rebuild and repair.
Location can also impact premiums. Location is important because some areas are more prone to natural disasters or certain elements, like theft and vandalism.
Additionally, insurers look at claims history. If you have a lot of past claims that signals a red flag to the insurer. In order to be comfortable, they’re going to want to collect enough premium to offset what they feel the risks are. That doesn’t mean that if you have a claim, you’re going to get penalized for it. But it’s definitely important, if you do have claims, that you attempt to mitigate the risk sooner than later.
Why do insurance premiums vary by provider?
Providers have different appetites for the types of risks that they insure. That could factor in experience or the amount of capacity they were given in a certain area. Every provider has a different portfolio of properties they insure, and they try to spread that risk. Overall, they’re assessing the risk they’re willing to take on and every provider is different in what they’re willing to risk.
There are lots of ways investors can reduce their insurance premiums. We’re going to talk about five key strategies every investor should know. First up, how can raising your deductible help lower your premium?
Well, increasing your deductible means ultimately, you’re self-insuring more, which lowers the risk for the insurance company. And that output is a lower premium for you.
If raising your entire deductible seems like too much, you can also raise your deductible on some of the problem areas in your portfolio. For example, if you’re seeing more issues with wind and hail, you can raise the deductible on just those perils.
When choosing your deductibles, consider what amount you’re comfortable with paying out of pocket after a loss before the insurance company starts to pay.
How can you save on insurance costs by making your property more resistant to a loss?
Property management helps you avoid preventable losses and demonstrates to your insurer that you’re serious about risk management. This means you’re clearing gutters, limbs, sidewalks, driveways, fireplaces, etc. to make sure that there aren’t any obvious risks or things that could pose challenges to guests or tenants. As an example, there was a recent claim that we had where a large tree, which appears to have been dead for a long time, fell after a little bit of wind and struck a child. This was a pretty obvious risk where the tree should have been cut down, therefore avoiding this claim. So, clearly, it’s important to take care of your property, especially trees and broken concrete and steps.
Also, many carriers may provide credits on the rates for working, hardwired smoke detectors, central station alarms, and sprinkler systems. Even smart home items, like thermostats and leak detectors, are helpful. It’s really about finding different ways to protect your property.
Upgrades to your plumbing, heating, and electrical systems are also other ways to mitigate potential damage and loss.
People often bundle their home and auto insurance to save costs. How can investors combine their properties onto one policy? And how is that valuable for the investor?
Combining your properties onto one insurer is really a good tool for the investor. And the reason I say that is because you’re better able to understand how all of the properties will be managed. You don’t have a deviation from one carrier to the next. It’s more efficient for the investor to understand where their policies are. We’ve had investors try to file a claim with us and come to realize that the property isn’t with us. To have some peace of mind, there is value in having all your locations in one place if you can.
While having all your investment property coverage in one place can be beneficial, I don’t recommend bundling your investment properties with your personal assets. That allows for a line of demarcation. If there’s a lawsuit, that places not only your business in jeopardy but also your personal assets.
How does requiring all tenants to carry renters insurance lower insurance costs?
Tenants by and large are interested in doing the right thing and protecting the property. But on the other side, tenants do things that are ultimately considered negligent. Having a renters policy in force means the insurance company representing the negligent party pays for a tenant-caused loss, which assists in stabilizing your property rates long term. If the negligent tenant doesn’t have renters insurance, the next person to pay for the claim is the owner. A renter that has insurance provides a buffer to help manage the risk.
Lastly, how should investors shop around and use an independent agent?
Independent agents are contracted with several carriers and programs. It’s important to find one who understands your unique needs as an investor and is willing to take the time to understand your goals. Different carriers will often provide different options and approaches to the risk (your property) in question. Independent agents have access to a lot of different resources to give you the best opportunity to get the coverage you’re looking for. In the end, you really just want to review the differences between costs and coverage. Consider that cheaper isn’t always better.
Where should investors not cut corners?
Liability insurance is one of those areas that’s a relatively small cost for what it’s protecting you for. Most people don’t understand that you’re not only looking at what the actual loss amount is, you’re also looking at defense costs. So, you’re looking at costs for investigators, arbitrators, mediators, etc., which becomes a large expense. If you’re looking to cut corners, that would not be an area where I suggest you do that. Generally, we recommend a $1,000,000 per occurrence, $2,000,000 aggregate as a minimum.
Another area where clients really shouldn’t cut corners is coinsurance. If your policy has a coinsurance, don’t be tempted to insure your property to a lower value just to save insurance costs. This can greatly impact your claim payout if you’re underinsured. For example, if you have a $100,000 fire loss and you’re in the coinsurance range, after your deductible, you could still only get maybe 30% of your claim value. So, it’s really important to understand the rebuild value of your home and insure it appropriately.
— Game Segment: How much could you save? —
For our game today, we are going to present a potential money-saving strategy with options on how much it could save. And you’re going to let us know which option you believe is correct.
Question 1: Insurance companies consider homes with smoke alarms a lower risk because they provide early warning of a fire, which can prevent a small fire from becoming a large one. How much do you think you can save by having properly installed smoke alarms? (A) Up to 5%, (B) Up to 10%, (C) Up to 20%.
As an adjuster in my previous life, I’ve seen in real-time how much money could have been saved if the smoke alarms were functional, for one, or even installed, for two. So, I am going to go with the high number, I’ll go up to 20% for this one.
That is correct.
Question 2: Increasing your property deductible from $1,000 to $5,000 could save you as much as ___. (A) 15%, (B) 25%, (C) 35%.
So, I haven’t been in sales in a super-duper long time, so I am going to go middle of the road with this one. Let’s go with 25%.
That is correct.
Question 3: Upgrading your roof to impact-resistant materials makes it less likely for damage to occur during a storm and can potentially save you between ___. (A) 5 to 10%, (B) 10 to 20%, (C) 15 to 25%.
Let’s see. Again, in my adjusting life, I can’t imagine how many roofs I’ve been on, but those materials are similar. There is just a fine line in how they’re used. I don’t think it’s a super high number. So, I’ll go to the middle of the road to guess.
Yes, it is 10 to 20%.
Watch the full interview here!
