Think about self insuring my properties

[Mark Fries]

I pay about 40k a year in premiums for my properties. I am well versed in the practicalities of having coverage but as my portfolio grows it's becoming a hassle to monitor and deal with it. Thinking about taking that same 40k each year and put it into an interest bearing account or other fund and let me work for me....if a property burns down...just bulldoze it and move on? I have a 10 mill umbrella policy in place and will always keep that.

Any thoughts?

[Mark Fries]

@Wayne Brooks

I think you're absolutely right I can't get the umbrella unless I have the other liability in place... They get you coming and going these days... I might try the captive idea but I think that it costs at least 15,000 to get started and I'll probably to have to pay somebody to manage it so I have to examine all those costs as well....

[Corey Scruggs]

@Mark Fries if you are going to self insure you should think about re insurance. If you go that route you still get to defer tax on the premium you charge your properties. If you have a claim it would come back as income at that point. Hit me up and I can walk you through it .

[Jason C.]

@Mark Fries

Are you using a stated (actual cash value) type of policy? If you are carrying replacement cost insurance and buying cheap houses it doesn’t really make sense.

I saved a lot of money after I found a carrier who was more flexible with the value of the coverage I could buy. So that may be another option.

[Mark Fries]

@Jason C.

Great input thanks jason!!

[Dennis M.]

@Mark Fries

This has been a very informative thread for me . Interesting how many options were out there that I didn’t know existed !

[Justin Plante]

@Jay Hinrichs. I am a brand new member so complete newbie to real estate investing so forgive my jumping in on a topic you are probably already all over. However, I am a 20 year insurance agent who has done lots of property and liability. For the past 12 years I have specialized in doing construction insurance for real estate developers doing projects 10M and up to over $1B and doing what is called OCIPs (Owner Controlled Insurance Programs).

Just my two cents but if you have multiple properties you might look at a commercial package policy that may have the option of blanketing property (one limit covers all properties and contents assuming they are not all in same location as carriers dont like that). May be cheaper and give better coverage for less premium because the likelihood of all properties being damaged at same time is highly unlikely.

Self insurance if done correctly is regulated by each state and you may need some help in order to do it. If you're just talking putting money aside in the event of a loss with no insurance that is up to you but I doubt any lenders would allow that unless you own outright and can do as you choose.

Just a heads up to all we are at the beginning of a hardening property market so expect rate increases that are not pretty. The carriers that do business property are different than those who do one off residential and may provide more appropriate coverage for investors with multiple units.

[Mario Am]

@Mark Fries being rich can be expensive sometimes!

[Glidden Rivera]

@Mark Fries

What about liability.

Someone gets hurt on your property,

You could be sued for millions of dollars.

[Glidden Rivera]

@Mark Fries

What about going with a high deductible plan

Not quitting cold turkey until you are adequately funded

[Glidden Rivera]

@Corey Scruggs

Man I would sure like to read what you have to say in the topic.

[Mark Fries]

@Glidden Rivera

I have a huge umbrella policy for that currently

[Mark Fries]

@Glidden Rivera

That's what I have right now and I thought it was a good idea because it saved me about a $100 per year on each property but in Florida all we get is hurricanes and the hurricane deductible per property is about $15,000..

So in essence I'm not saving anything like I thought I was with high deductibles because if I have one claim that's probably going to be hurricane related it's going to be $15000 deductible which is the $15000 that I'm saving every year by having the high deductibles so it's completely useless.. But I didn't figure this out until after I converted every policy to the high deductible..

[Billy Smith]

I self-insure my SFH homes from the get go do it by carrying a high deductible loses up top 300k, then umbrella kick in after that, I cover all small losses,

To get an umbrella I had to up my normal coverage to 300k coverage to get the umbrella.

It's amazing how folks carry low deductibles get smashed with high rates, there are just not up to speed stepped on how to cover SFH

Most umbrellas will only cover if you have all insurance SFH coverage with them.

I never found a company that would only write umbrella coverage, folks said they were out there but rates are higher.

[Jay Hinrichs]

Originally posted by @Justin Plante:

@Jay Hinrichs. I am a brand new member so complete newbie to real estate investing so forgive my jumping in on a topic you are probably already all over. However, I am a 20 year insurance agent who has done lots of property and liability. For the past 12 years I have specialized in doing construction insurance for real estate developers doing projects 10M and up to over $1B and doing what is called OCIPs (Owner Controlled Insurance Programs).

Just my two cents but if you have multiple properties you might look at a commercial package policy that may have the option of blanketing property (one limit covers all properties and contents assuming they are not all in same location as carriers dont like that). May be cheaper and give better coverage for less premium because the likelihood of all properties being damaged at same time is highly unlikely.

Self insurance if done correctly is regulated by each state and you may need some help in order to do it. If you're just talking putting money aside in the event of a loss with no insurance that is up to you but I doubt any lenders would allow that unless you own outright and can do as you choose.

Just a heads up to all we are at the beginning of a hardening property market so expect rate increases that are not pretty. The carriers that do business property are different than those who do one off residential and may provide more appropriate coverage for investors with multiple units.

for us we have no bank debt..  what I have for our inventory currently which hovers around 200 homes at anyone time is more of a builders risk Zurick policy were I can add one myself on line and take one off on line and only get charged by the month.. and this is fire and liablity its not the most robust insurance we can get but when your in the house flipping business like we are and many times we sell in 30 to 90 days and if the insurance is say 35 a month on a property we pay 70 bucks for the few months we own it.. that has value to us.. If we were keeping property and had debt I would have to look at other products..  but I know the product or assets the OP who started the thread is buying or generally know.. and I used to own 350 plus of those as rentals.. and when your purchase price is so low  it does get U thinking about just carrying liability. 

[Larry Turowski]

Very interesting!  I’ve read that insurance companies don’t make much money on premiums. They make money on investing the float. That is, the premium is paid up front. All those policy premiums become like a giant 0% loan to the insurance company. They’ll pay out nearly as much in claims but in the meantime it is free money to invest.

So do we have any actuaries here who know what @Mark Fries would be looking at in losses in say, a 20yr span?  It’s not like those insurance premiums will be all saved.  I wouldn’t consider this strategy unless I, like an insurance company, had risks spread across many properties and could somehow still get catastrophic insurance against the whole portfolio  just as insurance companies themselves do. 

[Justin Plante]

https://www.google.com/amp/s/w...

good article on builders risk above.  One thing I deal with all the time is who purchases the builders risk on a renovation or construction project.  If its ground up construction then typically no property policy is put in place until construction is complete and building is put to it's intended use.  However, builders risk can be purchased by the owner or by the general contractor.  

If you as an investor/owner purchase builders risk then there shouldn't be a need for the GC to purchase builders risk as well (assuming you have a policy that covers owner as well as contractors for builders risk on your projects).  If you are flipping properties and using the same GC then ask them what insurance they are covering for your projects ask them to identify what they are charging you for it and ask them to name you as an additional insured on their builders risk and their GL policy.  If you are purchasing builders risk and it covers owner and contractors then have them remove the charge to you from their budget for your projects.  Also, to be clear, contractors almost always apply overhead and profit to budget items such as insurance in the range of 5-15% of cost.

I like the owner controlling the policy as then they are the first named insured and control things like claims.  Also they get benefit of seeking coverage they desire and can get best cost if they put together a master builders risk program where as @Jay Hinrichs mentioned you can add and subtract properties at will and leverage a lower rate. If you have a lender, they will demand appropriate coverage.

[Javier D.]

@Mark Fries

About 2500-3000 per home here in Miami for windstorm so every 3 years im paying them for a roof that might come off during hurricane season. No thanks. Still gives me anxiety during hurricane season being uninsured though, especially last week! We dodged one.

[Robert Biggerstaff]

Mark what did you end doing ?