How much insurance is too much?

Question

My insurance broker and I are not seeing eye-to-eye lately. I own about 15 duplexes and I've always felt like I paid a little too much on insurance because I always paid more than anyone else I knew. I never really thought to look into things until my insurance broker said my rates would go up 20% - 30% moving into 2024-2025.

Right now I'm paying about $100/month per door. Most people I know are paying about $75/month.

So I went and got quotes from NREIG and Shelter Insurance. My insurance guy said their quotes were DP1 and he's writing DP3 and wouldn't touch DP1 policies. My Broker's policies include things neither NREIG or Shelter offered including coverage for: Sewer Line, Water Backup, Water Damage, and Personal Property.

As a business owner paying more is costing me about $7200/year in extra expense. I don't want to be over insured or under insured, but it's hard to tell what's what because everyone in insurance is such a good salesman. What should I be doing?

Jason Bott · Answer

Rob, everything your agent is saying is correct, it just comes down to what you want covered.  Don't feel guilty because you don't want to buy the extra coverage for $7,200 if you are comfortable coving those claims out of pocket.

How many claims have you filed in the last 5 years that would fall under the DP?

Also, keep in mind, in this insurance market, if you file 1-2 claims, they will cancel you and you will need to go to market with losses on your record.  The alternative options will be higher than what you are currently paying.

TIP - Raising your deductible to $5k will usually eliminate the need for the Water Sewer Back Up and Business Personal Property as those claims are usually around those amounts.

Replacement of Sewer Line in not available on commercial policies.  I have seen these cost $12k-$20k.

Water Damage is the big one and can cause $100k in damages to a SFR if the building is left vacant and the heat is off during a cold spell.  Pipes burst in the walls and flooring can be ruined.

Chris Seveney · Answer

@Rob Bianco

Really a personal decision on What you want to be be covered

For me I would save the $7200 per year and roll the dice on sewer etc and those other claims but others may think differently

Courtney Urbanek · Answer

Thanks for sharing, Rob! Insurance is definitely a confusing and important topic. So, hopefully I can help clear some things up.

DP1 and DP3 are personal line policies. NREIG uses commercial line policies. That’s why you may see Basic or Special Form instead. DP1 (Basic Form) is the most basic coverage form and the cheapest. DP3 (Special Form) is a lot more comprehensive and more expensive. Most insurance companies offer both a Basic and Special policy form option.

Some of the coverages you mentioned, may be ancillary products with different names. I broke down each one and how NREIG would insure it. Ancillary Products are optional coverages that cost extra but may also be added and removed from your policy at any time.

Sewer Line -> Service Line (ancillary product)

Water Backup -> Tenant Protector Plan (ancillary product). Sewer Backup under TPP is limited.

Water Damage -> Included on Special Form policies.

Personal Property -> Typically, the tenant would get Renters Insurance for their items. However, if you furnished the property, this is something you can ask your sales agent to add. This would only cover items you own.

If you don’t want to sacrifice coverage and lower costs, you could ask your sales agent for a quote with a higher deductible. Overall, insurance is a unique situation and depends a lot on your risk tolerance. I hope you find what you’re looking for!

Rob Bianco · Answer

@Jason Bott - I only filed 1 claim in the last 5 years due to fire. Fire Department came in put it out and left a lot of water damage. It was about $35k to fix everything, but this was on the higher quality insurance and I was taken care of.

I think I'm going to stick with my insurance guy, but raise my deductible to $5k and remove some things like Personal Property and see if that helps.

Jonathan Bock · Answer

Rob can you post the dec page or give some more color $1200 seems like a lot but if you have full replacement cost on your units it will be very cheap in comparison if you have a large loss ever

Its rarely talked about but if your units are well built and you acquired them for low prices your rebuild after a large loss is a game changer versus just a cheap fire policy if you are ok with self insuring and truly just want the lowest cost per unit.

I always like to increase the deductibles and keep out personal property but like everything it just depends.  For my coverages the pain point always is about the large losses from catastrophic damage and liability from lawsuits.  Landlords are probably right behind doctors as a target for plaintiffs attorneys.

Alecia Loveless · Answer

@Rob Bianco I think if you have a good team in place a lot of those things become less scary. My contractor could get much of that stuff fixed for less than $14,000 or two years worth of coverage assuming there was not a major problem every year.

Also as long as you’re not living in one of the units not sure why you would need personal property coverage on all the policies.

To save $7200/year I’d consider a different policy.

How much insurance is too much?

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