By Phil Oliver
“10 Ways to Save Big Money on Your Apartment Insurance and Close Dangerous Coverage Gaps” By Phil Oliver, Managing Partner, CIG Central Valley Insurance Agency Property and casualty insurance can be a significant expense for owners of rental properties. And, at the same time, if the coverage is not adequate to cover the risks owners face, the results can be disastrous. Having the right kind and amount of insurance protection is vital to the success of this business. So, here are 10 tips on how to save money and get rid of dangerous gaps in coverage for your rental properties.
1. Shop for the Best Rate Consider working with an independent agent who specializes in insuring apartment building. A good independent agent may have several appointments with top-notch insurance companies who want to insure apartment buildings. This is vitally important for a couple reasons:
No one company is interested in insuring every apartment building. Some companies only want the newer, highly preferred risk, while others may want older buildings and will charge a little more in premium to insure them. Having multiple companies helps the agent find the best coverage and price combination for your specific situation.
Agents who specialize in apartment buildings will know how to best protect your assets because they’re working with accounts like yours day in and day out.
2. Raise Your Deductible Deductibles are the amount of money you must pay toward a loss before the insurance company starts to pay a claim on your policy. The higher the deductible, the more money you can save on your premiums. 10 Ways to Save Money on Your Apartment Insurance
Page 1
By Phil Oliver
Seriously consider higher deductibles for these important reasons:
There can be substantial premium savings. For example, if you now have a $500 deductible, by increasing it to $1,000 you may save as much as 25% on your premiums. Over time this can amount to a substantial savings, especially when you consider investing that premium savings at an investment rate of return. By not submitting small losses, you’re keeping your claims record clean which can result in even bigger savings over the years. Why? Because you become more attractive to preferred companies who want to insure building with no prior losses (or at least a few number of losses).
3. Combine Policies and Locations Into One Policy In some cases companies offer multiple location/building discounts. These discounts can increase with the number of locations in one policy and can be significant. So, if your insurance is spread out in many different policies and/or companies, consider consolidating them into one policy with one company.
4. Don’t Confuse Market Value with Replacement/Rebuilding Costs! When you are insuring a new building, the market value typically equals the replacement cost of the building plus site preparation plus initial land value. But when it comes to insurance, the insurance company is only concerned with the replacement cost of the building. So, in the case of a new building, insure for the replacement cost and don’t insure the site preparation or initial land value. No big deal, this makes sense. Determining the replacement cost of older buildings, however, can be a little more difficult… and here’s why. Older building construction techniques are often more expensive to duplicate than modern construction techniques. And this can make the replacement cost significantly more than new construction. The key is to determine accurately what it will cost to replace your buildings if they were to burn down… today. This is so important for a couple reasons:
10 Ways to Save Money on Your Apartment Insurance
Page 2
By Phil Oliver
If you do have a total loss (like a fire, tornado, etc.) you want to make sure you’ll have enough coverage to rebuild. And if this happens during a catastrophe where hundreds or thousands of property owners are affected, construction costs can rise drastically. You don’t want to over-insure and pay more than necessary. If your policy has a coinsurance clause in it (and many do), if you have a smaller claim and you’re under-insured, the insurance company has the right contractually to limit the payment by a formula in the policy (coinsurance clause).
A professional insurance agent will use a “Replacement Cost Calculator” to help determine what the replacement cost is today. My advice is to never insure for less than what the agent recommends. And keep in mind that the true replacement cost of your building will change over time so it’s important to review your policies with your agent on a regular basis.
5. Improve Security/Fire Safety Make sure your safety devices like smoke detectors, Central Station reporting fire & burglar alarms, and sprinkler systems are working properly and have been reported to your agent. In some cases, these safety devices can generate significant discounts. Also, the most preferred carriers will want to know you have some of these systems in place and are working properly.
6. Look for Admitted Insurance if You Are with an Excess/Surplus Company If you bought an older, run-down apartment building, you may have been forced to insure it initially with an Excess/Surplus Lines company. These companies are not admitted to the state of California and as such can be much more flexible in their underwriting appetites. Typically the policies issued by these companies can be more expensive and offer less coverage than a standard insurance company. The good thing is that you were able to acquire the insurance to close on the property and satisfy the mortgagee. But since the purchase, you’ve done some remodeling and brought all the utilities up to code. Now you may be able to find an insurance company that is admitted and will offer a better policy at a lower premium. So, now that the property is spruced up, it’s time to shop and find a preferred company that will offer a more comprehensive, less expensive policy.
10 Ways to Save Money on Your Apartment Insurance
Page 3
By Phil Oliver
7. Improve the Exterior Appearance of Your Property Tenant occupied properties that have good “curb appeal” can often attract more preferred carriers who charge less premium for policies with even better coverage’s. Why, you ask? Well, for some pretty simple reasons. Let me list just a couple:
There are insurance agents/agencies who specialize in apartment insurance and are constantly looking for “cherry” properties to insure. One of their methods of prospecting for these properties is to drive around in their cars looking for them. When they spot a property with great “curb appeal”, they go after this business by offering their best carrier and policy to the owner. If your property is well managed and has good curb appeal, you will attract more of the activity we mention above. And these agents may even compete for your business by asking their companies for “IRPM”. This stands for “Individual Risk Premium Modification”. IRPM is a method whereby agents request discounts off of the standard rates posted by that company to a attract new business with lower pricing.
Now, let’s not get carried away here… if your property has good “curb appeal” but is a junkyard after you get past the front gate, it won’t fool a good agent or company. Here’s the key point. Agents and carriers who specialize in this type of business want to select prospects who will manage their property well and by doing so have fewer claims. By attracting these types of accounts, the carrier will be able to keep their rates down… and make a profit at the same time. “Curb appeal” is the first clue that you will be one of these type accounts.
8. Ask About Other Discounts Insurance companies offer many types of discounts and yes, sometimes the agent mistakenly forgets to apply all of them to your policy. So, ask your agent about any and all discounts that may be available to you. Nothing is automatic and it never hurts to ask. Here are just a few ideas on possible discounts:
Claims-free discount. Multiple policy discount. Mature client discount (some offer this for age 55+). Safety device discounts. Newer building discount. Non-smoking discount. There are companies now that offer this if it is in the rental agreement.
10 Ways to Save Money on Your Apartment Insurance
Page 4
By Phil Oliver
On-site manager discount. Owner lives on property discount… etc., etc.
9. Require All Tenants to Carry Renters Insurance Some apartment owners have a clause in their agreement requiring the tenant to carry renters insurance. While this is certainly a benefit for the tenant as it can save their bacon in a fire and other situations, it also helps the owner save money in the long run. Here’s why. Tenants can do dumb things. Often those dumb things end up getting covered by the owner’s insurance policy because the tenant didn’t carry renters insurance. If tenants do carry insurance, then their policy will pay for many of the liability and property losses on the owner’s premises. Requiring tenants to carry renters insurance can reduce the number of claims you submit to your insurance company and over time can help keep your insurance costs down. It will also make you more attractive to the preferred agents and carriers. Some agencies who specialize in tenant occupied insurance can help enforce the clause in your rental agreement requiring tenant homeowners insurance. They do this by mailing letters to the tenants reminding them of the requirement in their agreement and offering to write the insurance at very low rates.
10. Review Your Insurance on a Regular Basis with Your Agent As an owner of rental property it’s vitally important that you review your insurance with your agent on a regular basis… at least once per year. Why? Simply put, because things change. As I am writing this, the real estate market in the Central Valley of California has been in a free-fall for some time. Houses that sold for $400,000 in 2006 are on the market now for less than half of that. Also, construction costs are down considerably. And yet, it’s just a matter of time until new construction starts to flow again and costs will go up quickly as contractors get busy and materials are in more demand. All of these changes affect your insurance in some way. And it’s important to sit down with your agent and make sure that:
You have the protection you need given your current circumstances.
10 Ways to Save Money on Your Apartment Insurance
Page 5
By Phil Oliver
You’re getting all the discounts you deserve. You’re not over or under-insured. (this is a fast moving target in today’s economy) The company you’re with is still solvent and competitive. All the “i’s are dotted and t’s crossed” in your account (the details are right).
These are just 10 of many tips on how to save money on your apartment insurance and close any gaps in your coverage. But the most important one from my point of view (and it is not one of the 10 ) is to do business with a professional agent who will bring these “money -saving” and “gap-closing” tips to your attention because he/she is looking out for your best interests at all times. And I would also suggest that as an owner of rental property, you should seek out an agent who specializes in this type of business. A specialist is working with these types of policies and transactions daily. And the conscientious ones routinely study the developments and trends in the industry as it relates to insurance. With that experience and knowledge, he/she can bring more value to the client/agent relationship. Our agency specializes in insurance for tenant occupied property. If you’d like to learn more about us, go to our website, www.CaliforniaLandlordInsurance.com. Or, you can call us at (559) 802-4094. Phil Oliver, LUTCF is the Managing Partner for CIG Central Valley Insurance Agency and Central Sequoia Insurance & Financial Services. With over 37 years in the insurance agency business he has experienced success in ownership, management, sales and training in both independent insurance agencies as well as with State Farm. To contact Phil: Phone: (559) 802-4094 Email: info@CentralValleyIns.com Web: www.CentralValleyIns.com
10 Ways to Save Money on Your Apartment Insurance
Page 6