Enough Already! Michael Helps Tom Clean Up His Insurance Situation

Tom let his insurance expire and his lender chose him a sub-par policy. Michael coaches Tom on cleaning up his insurance situation, saving him some money. --- Transcript   Tom: Greetings, and welcome to The Remote Real Estate Investor. On this weekend wisdom, we have a fun episode here I am joined by Michael album, and today we're going to do a coaching session. So if any of you guys have listened to previous episodes, I am not doing the job managing my insurance. I'll talk more about that in a minute. But I'm going to have a live coaching session here with Michael, this is also a good example of what coaching sessions are like within Roofstock Academy if you guys are interested in checking that out. So we're going to do a live session in today's episode specific to insurance.   So Alright, let's do it.   Michael, thank you for podcasting, this coaching episode.   Michael: Yeah, totally no pressure on either of us, right. It's only gonna be the world hearing about your insurance book and my expertise or lack thereof, rather.   Tom: Yes. Okay. So within this session, what I want to do is, you know, there are various terms to an insurance policy. And, you know, this isn't investing advice, I'd love to know, kind of, based on your understanding of me, what do you think like a reasonable, and we can talk about in defining that deductible is and we can find the terms and then also in working with a broker, what do I need to provide them I've been really dragging my feet in going through this exercise in those of you guys are not familiar, I let my insurance expire. And then my lender bought me new insurance that is not great, and making myself accountable by putting it on the podcast and going through the process of updating it. So does that sound good?   Michael: It sounds great, Emil, and I've been hounding you. Since What? December November? Yeah, yep. So we'll put it out there for the world now.   Tom: So in this coaching session, I'm going to drive the agenda here and feel free to pepper or change direction as you think it makes sense. So why don't we start with the terms of the policy kind of ranges that you think would make sense, and this is going to be for a collection of single family homes that are held in my name? And I'm open to doing some like a group policy? What are the terms that you think general kind of ranges would be common for my kind of a profile? Let's start with that.   Michael; Sure. So you've got homes all over the country, right? You're in four different markets, five different markets?   Tom: That's right. Yeah.   Michael: So doing a group commercial policy might be difficult to do, just because every insurer is going to underwrite each area a little bit differently. And so you might not be able to have a single policy covering multiple properties. So the broker is likely going to quote you as separate individual policy for each property. Hopefully, it'll be with the same carrier, just because that makes things easier. But that might not be the case.   So first and foremost, what you want to be looking for is what your replacement coverage is. And you also want to make sure that it is what they call replacement cost, as opposed to actual cash value. Those are two different types of policies, replacement cost is much more comprehensive, actual cash value gets you a depreciated value, if there is a loss in the property to replace whatever is damaged. So that's abbreviated in the insurance industry as RC for replacement cost versus ACV, for actual cash value.   So first of all, first of all, to make sure that every property is is RC replacement costs, then you just want to do a quick check on what that value is. And so let's say on a single family home, they're quoting you 140,000 for a replacement cost. And that property is 1000 square feet. So what you do is you want to determine what that rebuild cost is.   Tom: Who's quoting that number? Is it the insurance company that's recording?   Michel: Yeah, 95% of the time is gonna be the insurance company got it, you can often change that number and push it higher, if need be, but they're gonna give you a minimum, typically, and that's who's driving that number. And they have an underwriting model and blackbox, that's where it spits out. Okay, this is the square footage, the age into their algorithm, and it spits out a number. So what you want to do is double check that number against the square footage, and basically divide that coverage by the property square footage to get your replacement cost to rebuild that property on $1 per square foot basis.   So in this example, if we took 140,000 divided by 1000, that's $140 per square foot to rebuild a single family home, let's say that's in the Midwest, somewhere, that's a pretty reasonable rebuild cost. When I see things in the 75 8085 $90, a square foot range, that's when I start to get a little bit nervous. Because Can you really go build a house for $90 a square foot? Or if it's burned to the ground to totally ground up   Tom: Skimping it? For sure. Yeah. And then that just puts you in that liability, where you actually have to use the insurance and it's like, oh, not enough to cover. So sorry, it was that kind of rough estimate roughly 100 bucks.   Michael: Yeah, I like 125 to 150. Got it. For most parts of the country, you know, California is closer to 250 to 300, New York is up there as well. So based on geographically where you are, you just want to get an idea of what that number looks like. And if you're north of 100, it's probably good and just ask your property manager, hey, what's reasonable rebuild cost for the area. So that's number one.   Second is your ordinance or law coverage. I always get those on my policies. If the property burns to the ground, they have to rebuild it for today's code, you just wanna make sure you have coverage of that. And because the insurance company's not gonna pay for a betterment or improvement, they're gonna give you like for like, so if you have an older property, this is really important to have that's typically a very nominal additional cost to have on the policy. Another thing I like is sewer or drain backup coverage. Again, relatively nominal cost, and it's a nice coverage to have loss of rents, something you absolutely need to have.   And most landlord policies come standard with that, but you just want to double check the timeframe. And so different companies, different carriers will quote it differently. Some companies will tell you, oh, we're gonna give you 12 months of coverage or 18 months of coverage, or whatever that is, and they'll just cover the dollar amount, however much lost rent, you lost in that timeframe, while the property was down, or other companies will get, quote, you $1 amount and say, Tom, we're gonna give you $12,000 in coverage, and your property rents for 1000 bucks a month, so that you can back into determining, hey, that's 12 months of coverage, I like 18 months of coverage personally, just because anybody who's familiar with the Chico fires, or some of the California wildfires, we had those fires occurred a couple years ago, and those properties haven't been rebuilt.   So there's absolutely the possibility of the loss going beyond that 12 month time frame that comes standard on the policy. The other thing I like is liability, I personally get a million, you can get more than that with an umbrella, you could also get more than that quoted on your dwelling policy, you can get you know, a million and a half 2 million, pick a number that you're comfortable with, and then layer it between the dwelling policy and the umbrella   Tom: And that liability that would be separate from the individual property, or that would just be part of each individual ones. I'm doing these for a bunch of properties. Got it.   Michael: Yeah, so each property policy is going to have its own liability limit attached to it most likely, if they're gonna quote you a blanket policy with all four properties in the same policy, which again, I doubt that they would be able to, they could have a single liability limit across all four properties. But again, that's going to be unlikely. So if you go get four separate policies, each one is going to have a liability limit associated with it. And you can pick and choose what you want that to be. And if you're uncomfortable with the limit, you can go get an umbrella as well to sit above that that umbrella will sit over all those properties as long as they're named on that umbrella polic.   Tom: And that's just a common myth of a lot of people that don't put their property in an LLC. Well, so   Michael: I put my properties as like a Yeah, well, yes or no. So I put my order. So I put my properties in an LLC, and the LLC has an umbrella as well. Those are the big ones to just be cognizant of something else to think about is is called guaranteed replacement cost or extended dwelling replacement cost. Basically, the way I formulate the question is if your limit says 140,000 on your single family home, you ask the agent, hey, what if it actually costs 170,000 to rebuild this property? Who is responsible for that 30,000 Delta, and there's a coverage you can get either called guaranteed replacement costs. Well, the insurance company says Yep, the limits 140. But we'll cover it, even if it's 200, whatever it will pay for it. That's a coverage.   And if they don't offer that something called extended dwelling replacement coverage is usually a percentage off in 25, or 30%, of your dwelling limit. So if you're 140, they'll just give you as an additional buffer. So if you had additional 25%, on your 140, that's an extra 35 grand, so you in reality have 175,000 in coverage. And that extended dwelling replacement cost coverage is extremely nominal. In most cases.   Tom: This is saving me so much time. I'm really happy to be doing this. Alright, any other aspects on types of things to include within the coverage?   Michael: Those are the big ones. And then I get every policy quoted three times, I get a credit thrice lowest deductible, next highest and then next highest. Because what I've often found is that the increase in deductible, which happens often is about 1000, to 15 $100 increments. So they might do 1020 500. And then 5000, or 20 570 500, is that savings that you're getting in terms of your premium reduction by taking a higher deductible is so often miniscule, you're often best served taking the lowest deductible, if they're going to give you an extra $13 or $20 a year in savings, but you've got to take on additional $1500 of risk every single year. That might not make a lot of sense. Now if there's a huge Delta, yeah, okay, we want to be thinking about it. But I've seen, especially on single families, not a huge variance between those higher deductibles.   Tom: This is great. And also just real quick. If you want to just define deductible real quick for folks not not familiar with that aspect.   Michael: Yeah. So the deductible is how much money you have to pay for a loss before the insurance company will come on to a loss. So let's say you had a small fire in the kitchen, and the assess damage is $5,000. If my deductible is $1,000, I've got to pay the first 1000 to get that fire damage repaired. And then the insurance company is going to come on for 4000 on top of that, assuming it's a covered loss, and they deem that I have coverage for that loss.   Tom: Got it out of pocket liability. Got it. And I love that that's such a great advice of getting three quotes, just to confirm that that was the lowest deductible and then the three tiers above that.   Michael: The next two above that Yeah, for a total of three.   Tom: Next two above that.   Michael: So you get three Yep.   Tom: I'm fired up, Michael,   Michael: As you should be   Tom: to my broker. You know, I had this, what I'm learning now was a wrong idea that I need to provide my own whatever coverage I don't need to provide that to an insurance broker,   Michael: You need the address, you likely need the age of the building. They can pull a lot of this stuff a lot of the property specific information online, so you should ask them what they need. Every broker is going to be a little bit different, but the address should be enough to at least get started on a quote. They're going to come back with a basic quote and you're going to go back and forth massaging it with them and basically what I'll do is anytime an agent is Quoting me something, I'll just send them kind of a skeleton of those coverages that you and I just talked about, and say, quote me this, then they'll send it back. And they'll tell me, I can't get this coverage or this or that. And then we massage back and forth.   And I say, Great, this is the package I want. Now, give me the three different deductible pricings. And let's see what makes the most sense.   Tom: Lastly, in, I get to a point where I find something I like, and I'm ready to find it, do I need to reach out to the lender to cancel all my other insurance? Or what is that consideration?   Michael: They should do it automatically. So oftentimes, the insurance company will work directly with the lender. And so you should be getting the date of effective coverage, the insurance company will notify the lender, then the lender will hopefully cancel your old coverage. And then you should get a credit back for if you pay that premium in full, or whatever premium you haven't used, you should get a refund. But yeah, definitely chat with your lender and let them know hey, this what I'm doing this is the effective date. Can you cancel the old coverage or there's anything I need to do? Because you don't want to have that be fumbled? Just by not asking a question.   Tom: Over communicate. Love it.   Michael: That's right.   Tom: Awesome. Any any final things before we close out the weekend? wisdom?   Michael: No, I think that's it, just you know, keep on it. Go get multiple bids. And you can talk to multiple agents do it too, because not every agent will work with every insurance company. So if you've got a property in Indianapolis, there might be 30 insurance companies that are willing to quote it, but the agent that you're talking to only works with five. So talk to multiple agents, find out what carriers they're able to write with and in that geographic area, and then see if they can get you quotes for multiple.   Tom: Awesome. Thanks, Michael.   So I hope you guys enjoyed this episode. This was kind of fun, because it's very self serving, like a lot of the episodes we do, but there's also a good taste of like what an academy joining the mastery program that we have like what the coaching session, in this particular coaching session, I was kind of prepared with a bunch of questions, there was something very specific that I needed to do and I feel like I've been thinking that I'm a happy customer right now. Thank you, Michael. Awesome. If you enjoy this podcast, please rate us subscribe, tell your friends, all that good stuff. And as always, happy investing.   Michael: Happy investing.