Advice on having insurance on your property

[Ana Garcia]

Hello BP community,

After almost getting hit with a category 5 hurricane in South Florida, I wonder if it is a good idea to have more coverage or less. As investors, we try to keep our costs low, therefore, the goal would be to have lower premiums. On the other hand, experiencing a natural disaster can be very damaging and an insurance policy can save the day...but does it really?

Does anyone have any advice on how they insure their properties? Do you focus on paying the lowest premium possible, even if deductibles are very high? Or do you prefer to have more coverage?

Thank you,

-Ana

[Christopher Smith]

I can't provide any Hurricane specific related experiences, but I can comment on how I evaluate my insurance needs. 

Probably as with most folks I want to obtain as low a premium as possible, however that is subject to a number of other factors. The quality or rating of the insurer being a very important one (e.g., AM Best rating, internet reviews from actual policy holders, etc.). My experience is that rates can vary widely even for companies of the same AM Best rating, so it really helps to shop around. Additionally, the reputation of the carrier for being scrupulously fair and appropriately responsive to those making bona fide claims is another very significant factor.

With respect to risk, I think this is driven by your own risk tolerance. I believe in self insuring when possible as this is over a long period of time is often the most economical way to go. Of course that reflects my own personal modestly high tolerance for risk assumption. On the flip side, highly risk adverse folks want to sleep easier at night and would never do that. 

On my rental properties, I have a $1,000 deductible on each and have had 2 file-able claims over the last 10 years or so (both for water damage, one about 5K, and one about 25k). I'm certainly glad I had the coverage especially for the larger loss and was very impressed that my insurance company paid without much static for everything less the deductible particularly given the all the horror stories I have heard about water damage related claims from others.

In any event, I think it ultimately just comes down to understanding your own personal willingness to assume risk, and how much. Then once you know that doing solid due diligence work on selecting an affordable yet financially secure and highly responsive outfit to provide the coverage.