To Insure or Not to Insure?

[Linda Pasas]

Hello fellow BP friends,

I am frustrated with my property insurance and was hoping someone could guide me in the right direction.  I bought 8 out of state rental properties within the last year and have insurance on all of them.  I had two frozen pipes that caused substantial damage this last month and neither were covered under my insurance.  Since I paid cash for these properties, I'm not required to have insurance.  I'm considering letting it expire when it's up for renewal and just getting a liability policy or umbrella policy.  I've been taught to always insure but if it's costly and doesn't cover claims, what is the point?  Does anyone have advice on this?  Thank you.

[Joe Splitrock]

@Linda Pasas self insurance can be a good option if you own hundreds of properties. Let's say you own 300 properties that are all worth around $100,000. If you are paying $300 per year to insure these properties, you are paying $90K per year. At that point the financials may work out better to self insure. Many larger operators will chose to do this.

Another situation may be if the properties are so run down that insurance may be useless. Maybe you purchased a house for $15K and made your money back in rents after three years. At that point, if it burns to the ground, sell the lot for $8K and move on. 

In general for properties of decent value, I would always recommend insurance with the highest deductible. The purpose is just to cover catastrophic loss like fire, tornadoes, etc. It is worth it to me to spend $300 a year to avoid a $100K loss.

Like every question, there is no one-size-fits-all answer. It just depends on your situation and risk tolerance.