How important is insurance with good coverage, really?

[Kyle McCorkel]

I’ve been using the same insurance broker for around 4 years. He’s written dozens of policies, rentals and flips, vacant and occupied.

I’ve recently gone and gotten a few quotes from another broker and they came in a few hundred dollars lower PER LOCATION. Portfolio wide, this could be thousands of dollars of savings per year.

I’ve come to realize that the difference is that all my current policies are DP3 and all the new quotes were DP2 (insurance jargon). I had no idea what this meant until yesterday. Basically the difference is what types of events can be covered in a claim. With DP2 there is a list of a few dozen things that are covered. With DP3 there’s a short list of the only things that AREN’T covered (things like nuclear war).

I'm seriously considering switching to less coverage for higher cash flow. We keep a ridiculous amount of cash reserves (18-24 months PITI), plus we have lines of credit we can tap into as well. My line of thinking is, the chances of an uncovered disaster are outweighed by the benefit of increased cash flow. And if we do have something happen that isn't covered, we have the cash on hand to cover almost anything.

Has anybody else wrestled with this type of insurance decision? Curious to hear how others manage their risk.

[John Mocker]

Kyle, Wether or not you chose to reduce coverage to save money is a matter for you to decide. I would consider offering your current agent the opportunity to quote the lower coverage. Also, if you had to discover on your own that the new agent quoted you lower coverage I would consider a different agent if you switch. If he/she was not able to match what you had or if they should have been upfront about it. Suppose you had not figured it out on your own and had an uncovered loss how would you feel.