Why am I even paying for insurance?

Question

Building is 100 year old Main Street Mixed-Use Building. I pay about $650/mo for insurance. These buildings can be tough to insure because only a few providers will cover them.  Last night, a tenant overflowed a sink which caused havoc in the salon down below. I had a water mitigation company out(a friend) and he thinks we could get to 10k in just water remediation. I'd expect it be another 5k or so in remodel(floors, kitchen cabinet, etc...). So, 15k or so total.

In speaking with my insurance broker today, he shared with me that theres some risk in filing a claim because these providers are getting finicky and he's been seeing them drop coverage for people after the claims. One recent example was a gentleman with 4 similar buildings to mine who has never filed a claim in 20 years of coverage with my broker was dropped from coverage on ALL FOUR buildings after filing a hail claim on the roof.

Here is where I am stuck. My deductible is $5,000. By filing a claim I can have all of this covered by insurance, but risk them dropping my coverage. If I were dropped, he suggested we could try state provided insurance, which "the coverage is not great." to which I argue, does coverage even matter if I am going to be afraid to file a claim every time theres an issue??

The other option is of course to just pay this out of pocket, but then, why am I paying nearly $8,000/yr for insurance?

It seems crazy, but I feel like the best option is file the claim, risk losing coverage but get this issue covered, then find some catastrophic/liability plan only and ride it out?

Insurance is a racket.

Ron Brady · Answer

We concur, insurance is a racket.

Chris B. · Answer

Their rent is higher for a reason, and thus the need for government assistance.  They are of a generally less responsible and a higher risk group.  Sure you make a little more.  Your odds of something like this happening that will cost a fortune to remedy are a little more also.  Keep it all in perspective as you may not be making the extra profit you see statistically.

Regarding your high insurance premiums and high deductible, we don't know how large the building is or what shape its in, but on the client side it can seem almost criminal.  On the other side, if there was good profit to be made by another insurance company moving in while charging less, these companies would be doing so.

With the government program as a backup if dropped, I would have filed the claim also.

Trent Zimmer · Answer

Appreciate all of the responses. I ended up filing a claim and they are covering it. Will keep you all posted on how it unfolds after that.

My situation is slightly unique in that my tenants are on a county supported service that helps find housing. The perk, I get consistent and above market value rent. The downside, these tenants dont have insurance.

Luckily, after speaking with the program leader, we are going to require all tenants to pay one year of renter's insurance up front and it will get rolled into their monthly budget. Moving forward this is a huge win.

Ned J. · Answer

Insurance is all good.... until you need to use it..... we dont cover that.... oh you actually want to make a claim?... ok, we are going to drop you now.... or ok, your rates are now 3x times higher.... thank you for your business

When it comes to actual property damage, its probably better to just take that aspect of the insurance premium and put it in a separate account for when you need it.

Kevin Sobilo · Answer

@Trent Zimmer, so in this case the primary responsibility to pay is the tenant. Have you discussed this with them? If the tenant pays what they owe, then you are out of pocket nothing and there is no reason to file a claim?

If they aren't able to pay, you can prepare to evict them and file the claim. I would not be shy about filing a claim. However, this is a claim that they could count against you because it was caused by a tenant you placed in the unit. The ones that I don't think would count against you would be acts of God like storm damage. I have filed storm damage claims and never had an issue.

Theresa Harris · Answer

If they drop you for one claim, then I'd agree with you as to why are you paying so much and with such a high deductible.  The big thing to have is liability.  My insurance (I'm in Canada) are no where near that. The highest on my rentals is $1100 a year on a house.  The others are under $500 a year.  The rate on my own home is higher as contents are insured.

Why am I even paying for insurance?

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