Investment Property Insurance - what is important?

Question

Hello BP community,

when obtaining insurance for your new investment property, what balance between the deductible and total premium do you look for?

Does it matter to you if the deductible is as small as possible and thus your monthly payment is higher or you want to lower your payments and therefore go for higher deductibles like $2500?

I asked to lower my deductible to $1000 but the total cost of insurance went up by about 25-30%. And now I am thinking that it wasn't a right move; that I should go back to $2500 deductible and lower my monthly payments to inclrease my cashflow.

Thomas S. · Answer

The primary goal in having insurance is not ever having to use it. I will avoid making claims at all cost to keep my premiums low. To do this I determine what repairs I can afford to do myself to save money and avoid claims. A 5K insurance claim can easily be repaired by me for usually under 2K so I have a deductible of $2500.

If you have zero hands on ability or do not self manage you may want a lower deductible but you should try to avoid making claims if you can afford the repair cost yourself.

Making claims will increase your premiums.

Jason Bott · Answer

@David Khalfin

If you have a $2,000 claim, and a $1,000 deductible, are you going to file the claim?  If yes, then go with the $1,000 ded.  If not, no reason to keep it at $1,000.

On average with property claims, they are usually pretty small, or over $5,000.  There are not too many claims in the $2,500-$5,000 range that most investors file claims on, they usually choose to just fix themselves.

Also, the deductible is one of many leverage points in a policy where you are exchanging risk for premium with the insurance company.  It's the easiest one to focus on, but usually the one that has the smallest financial impact when you have a larger claim.

David K. · Answer

@Ankit Garg,

I am closing on 2 at the same time and both quoted very similarly around $500-$550 with $2500 ded.

I rejected both because I wanted $1000 ded but now I am reconsidering (the reason for this post) and most likely will go back to them to agree.

good luck with your purchase!

Ankit Garg · Answer

@David Khalfin I am in the process of closing my first rental property with roofstock as well. I got the quote of 678 with 2500 deductible and 591 for 5000 deductible. I am leaning towards the 2500 deductible.

What are your quotes looking like and which one were are you leaning towards?

David K. · Answer

thanks @Thomas S.

Yes, I learned the hard way on my own property after Sandy - claimed all bits and pieces andn then ended up paying more than double on my premium

@Jason Gines, thanks for the input (perhaps you should also reconsider :)

David K. · Answer

@Jason Bott,

Thanks,  I think you just confirmed my doubts about my decision.

The reason I am doing this investing business is to create cashflow and so anything to increase the revenue will have to prevail

Jason G. · Answer

@David Khalfin, I went with the lower deductible as well on all three properties I've insured using that carrier.

David K. · Answer

thank you @Jack Bobeck and  Jd Martin,

I am currently closing on 2 properties that are both rentals and both are of state for me and I got them via roofstock. So, yes, I am buying both "blindly" and that is why i figured that lower deductible is the way to go, but now I am questioning myself if i am perhaps overreacting.

The insurance company that roofstock works with, offers premiums around $500 and $2500 dedu and they do not offer lower dedu. So I went ahead and found my own with dedu of $1000 but premium around $850

JD Martin · Answer

Depends on how much risk you think you'll have to cover out of your pocket and how much you have in reserves. If you have healthy reserves, and the $1500 difference is chicken feed, then *most of the time* it pays to be self-insured as much as possible. Insurance is a  gambling game in which the house (the insurance company) has the advantage, and it has to be that way or they would go out of business, but the player (you) sometimes wins more than you spend.

I balance the deductible by the difference in price. Very small savings, I'd rather have a lower deductible, but 30% is a pretty good sized number. I spend about $500/mo in insurance for all of my properties, so that would be about $150/mo, or an insurance claim deductible every year.

Jack Bobeck · Answer

I shop my insurance every year. They are all changing, be absorbed by one another, changing X because of Y. I just saw premiums rise 30% on one property due to a "flat roof", its a game, you have to play. My deductible is 2-2.5k, which I can pay, if I need to, but not too high to where I cannot. Shop it, look for a better deal each year before property taxes come out in the fall.

Investment Property Insurance - what is important?

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