THE RENTAL PROPERTY INSURANCE MARKET IS OUT OF CONTROL!!!...WHAT OPTIONS DO YOU HAVE AS A LANDLORD?
The prices for everything have increased dramatically across the board and nowhere is that more true than in the housing arena. People might be complaining about the cost of eggs at the grocery store because that is a weekly reminder of inflation, but the problem is much larger when it comes to large lump sum payments that cover a twelve month period.
Enter: rental property insurance. Unlike a typical residence, where the insurance costs are built into your monthly mortgage payment as escrow payments, investment property insurance is paid separately and upfront. In today’s market, we’re seeing policy price increases as much as double or triple from one year to the next. What once cost $2,000 to insure now costs up to $5,000 or $6,000!!! What is a landlord to do???
A LITTLE MORE BACKGROUND
Due to the turmoil that is the housing and rental markets in recent months and going on years, some companies are no longer accepting or writing new policies for rental properties. Their inability to accurately assess the market leads to what they perceive as greater risk on their end. It’s almost like being a doctor and being used to the privilege of choosing your own patients but now the tests and pre-screenings all come up inconclusive. So rather than dive in blind, some companies are walking away.
This then puts more and more stress on other insurance providers to fill those gaps. If companies find themselves in these uncomfortable and unpredictable situations, they’ll resort to the one best way to protect themselves: increase prices.
To that point, we’re seeing more and more owners of three family homes that were once insured for $2,000 being asked to spend at least $4,000 to insure their properties. Where are they going to come up with that extra $300/month?
LEARN MORE: AS EXPENSES FOR RENTAL PROPERTY OWNERS CONTINUE TO INCREASE, TENANTS ARE ASKED TO SHOULDER MORE AND MORE OF THE FINANCIAL BURDEN
WHAT CAN YOU DO TO HELP REDUCE YOUR PREMIUM?
Nowadays people love to get caught up in complaining about the world around them. At Nexus, we prefer to focus our time on the solutions to said problems. Here are five best steps and options to explore should you wish to reduce your premium:
1. Connect With A Trustworthy Insurance Broker
Having an expert in your corner is always a major advantage. Insurance brokers vet policies from a multitude of providers to help you find what is best for you and your situation. They are experienced and tuned into those market changes and trends. It might seem like you can save money, time, and/or convenience by bundling with your car insurance or finding a cheap solution online, but going it alone or without someone who speaks the language of insurance leaves you exposed when things get difficult.
If you can’t figure out who to trust, you can also reach out to a reputable property manager. Nexus manages over 1000 units across New England and Arizona and have worked with some great insurance brokers over our decade in the rental property world. Here are several you can start with:
CONNECTICUT: Trager Reznitsky Insurance
BOSTON METRO, MASSACHUSETTS: H&K Insurance Agency Inc.
RHODE ISLAND: Chatterton Insurance, Inc.
SOUTHEASTERN MASSACHUSETTS: The Lapointe Insurance Agency
LEARN MORE: 3 REASONS IT PAYS TO HAVE AN EXPERT IN YOUR CORNER
2. Reduce The Insurable Value Of The Property
It is very likely you’re insuring the full replacement cost of your property. This default ensures you receive the full cost necessary to rebuild should the property be destroyed. It likely costs upwards of 5,6, $700,000 to rebuild today so you’re paying a premium based on that potential payout. Instead, you could reduce your premium significantly by just covering the mortgage cost. In that case, you might only pay for coverage of $300,000 and you’d likely be looking at a partial payout if something terrible happened, but you’d save a good amount up front on your premium. Is taking on more risk worth it for you? Possibly. Possibly not.
LEARN MORE: WHAT TO DO WHEN YOUR PROPERTY MANAGER ASKS YOU TO ADD THEM TO YOUR INSURANCE
3. Increase Your Deductible
This is a great option, especially if you’ve owned the property for a couple years and have caught up on any deferred maintenance. Typical plans will have deductibles around $500 or $1000 to reduce your out of pocket costs in the event of a claim. The tradeoff is that you’re paying a higher premium for that protection. If your property’s appliances and mechanicals are up to date, and you’ve built up a good amount of equity or reserves, it might make sense to increase your deductible to somewhere closer to $5000 or more. Yes, you’d be responsible for any claims/costs below that, but the odds of those popping up should be low if you’ve upgraded or carefully maintained over the years. And if anything major happens, you’re still covered and won’t have to pay out of pocket.
LEARN MORE: THE EXPENSIVE TRAP THAT IS DEFERRED MAINTENANCE
4. Bundle Current Policies Into One Policy
There’s a reason so many generic companies on TV are always talking about “bundling”. It naturally makes sense that you can save some money if you decrease redundancies and other fees that come from holding so many individual policies. If you own multiple properties, working with a broker to help bundle them is a great way to maintain much of the coverage you already have and possibly find some savings. Again, do the work to find a reputable insurance broker who can help you with this. Even if you move forward with one of or some of the other options, it never hurts to try taking advantage of scale.
LEARN MORE: NO DEAL IF YOU CAN’T SCALE: WHY MAINTENANCE VENDORS PREFER TO WORK WITH PROPERTY MANAGERS
5. Omit Loss of Rent Coverage
Whether you’re aware of it or not, it is very likely that your rental property insurance includes loss of rent coverage. In the event something significant/catastrophic happens to your property and your tenants can no longer live there, loss of rent coverage will cover a predetermined amount to ensure you still have money coming in. In our experience, this is rarely used. From time to time, landlords may have to put tenants up in a hotel for a couple nights, but it is rare that they utilize the full rent coverage amount. Depending on your policy, you may be able to save upwards of $500/yr. by omitting this coverage. Those savings alone could cover the cost of a couple nights of accommodations if need be. Again, check with your broker to see how much reward you might get from this tradeoff.
LEARN MORE: BEST PRACTICES: CONSISTENCY FOR ALL CUSTOMERS
SUMMARY
Like many businesses, insurance providers are looking to maximize their profits and hedge against excessive risk. For that reason, insurance premiums are harder to get and more expensive than ever. There are several avenues you can take to help minimize your own insurance costs. If you’re looking to maximize your own profits, you’ll benefit greatly from having an expert on your side. Spend the time to find an insurance broker you trust and who fully understands your needs and preferences.
If you’re looking for a shortcut and live in a state where Nexus has an office, we can help guide you in the right direction. Nexus Property Management® has been in the business for over a decade and we specialize in cultivating strong relationships. We are not insurance experts ourselves but we have grown close to many who are. If you’re interested in learning more about Nexus’ services and you're in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.
LEARN MORE: THERE ARE THREE DIFFERENT KINDS OF PROPERTY MANAGEMENT COMPANIES TO CHOOSE FROM
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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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