Insurance Deductible for Single Family Rentals?

Question

Obviously everyone's risk tolerance will be different, but deductible amount are most people using on their single family rental units ($500, $1000, $2000, something else). I'm talking about under $100k mid-west or south-eastern US, C-class, blue collar neighborhood properties being managed by a presumably quality property management company. I carry $500 on my primary residence but I'm thinking there could be a better way to approach rental properties.

Bola A. · Answer

I have a property in Maryland.  I am not sure the best company to get landlord insurance . Thanks

Steven Loveless · Answer

There is also a heavy dependence on where you live. I live in North Texas where we quite often have damaging winds and hail. I fully expect to have a weather-related claim (roof, windows, etc.) about every 4-8 years on my home. My provider has weather deductibles based on a % of property value. The issue is that as property values increase the deductible has been going up faster than the premium and the actual cost of the items to be replaced.

My deductible over the past few years has gone up almost $2k, but the cost to replace the roof hasn't increased that much. Which means I'm paying a $5k deductible on a ~$8k claim. I have projected it to save me money to go to a lower deductible if I expect an event in the next 10 yrs or so.

In the end it's a projection & risk tolerance problem.

Jonathan McKay · Answer

I went with $5k deductible on ACV of the property. This was the maximum my bank would allow, and took a bit of negotiating between the broker and the bank to get it there.

John McDermon · Answer

@Jason Bott -- thanks for the perspective on looking at the differential in risk and not the total risk.

@James Mc Ree -- insuring for 90% replacement value is an angle I hadn't considered. Definitely, something to take a look at once I'm up and running.

Jason Bott · Answer

@John McDermon Most of my clients who have 5 or less sfr will take $1,000 or $2,500.

When moving from a $1,000 ded to a $2,500, most clients focus on paying out the $2,500.  But in reality, your actual risk has only increase by $1,500.

Depending on the size of the policy, I see the saved premiums build up to $1,500 over a 4-5 year time.  At that point you have self funded the additional risk and back at the $1,000.  This of coarse, if you only have 1 claim every 5 years.

James Mc Ree · Answer

I have a $5,000 deductible.  My rationale is I want insurance for "big things", not the little things.  I save annually by taking on the first $5,000 of risk and hope for nothing bigger than $5,000.

My SFR townhouse properties are priced in the $70-$80k range and have replacement costs around $130k.  I insure to 90% of replacement cost instead of full replacement cost which saves a little more.

Jim.

JD Martin · Answer

I think most of mine are 10% of ACV of the house. I can look if you really want hard numbers.

John McDermon · Answer

@Jassem A. $10k -- really? You must be working with a larger cash reserve than I'm planning.

@Vic French You're right, the Insurance Companies get you coming and going. For every increment in deductible the insurance quotes go down about $100/yr -- so, for example, going from 500 to 1000 deductible after 5 years of  zero claims, I'd be money ahead. So, how reasonable is it to expect 5 years with no insurance claims in a SF rental?

Jassem A. · Answer

I usually go with a 10,000 deductible but may consider lowering it in the future

Vic French · Answer

It all depends on what you can afford. My experience has been that lower deductibles mean higher insurance rates. The insurance companies get you one way or the other. Heaven forbid if you ever have to make a liability claim.