All Forum Posts by: Kyle S.

You may want to look into forming a captive insurance company, which acts as a supplement to traditional insurance. Large real estate companies do this. Worth some research. 

https://www.nisivoccia.com/captive-insurance-strategies-can-pay-off-for-real-estate-operators/#:~:text=The%20captive%20insurer%20can%20cover,or%20subject%20to%20high%20deductibles.

Insurance company reserve requirements are typically in the 10-15% of policy value.

You would also have ongoing regulatory costs. Licensing, regulatory, office space, and such costs. 

@Kyle Stewart If you’re going to set up an actual insurance company, you need to deal with corporate formation, policy drafting, regulatory approval, reserve requirements, etc. In other words, millions of dollars in the hope that you can get your policies approved in the states you want them issued. 

But I think you’re really talking about self insuring. I don’t think there’s a lender in the country that will let you borrow under the premise of self insuring the property. If you don’t have any debt on your properties and you feel comfortable taking the risk of self insuring, you are still ignoring the greater risk from liability claims. Property insurance is only part of the risk management equation.

@Kyle Stewart

If you have loans on these you are going to spend tens of thousands in legal just to get an agreement together that the bank would approve.

Even the largest owners of real estate in the country don’t do this, and they try and squeeze every penny

 As mentioned, your lenders will want you to have $10M in money put aside. You can underwrite it but who is going to back the policy? While you may think three claims could never occur, what happens if a bullet passes through the a home and kills someone and the tenant decides to sue. The legal on that alone will be huge (more than the house is worth probably).

What some people do is they will self insure up to a value. For example the first $50,000 in damages/claims they will insure and then get a policy to cover anything above that. 

This will provide lower premiums and save money and also cover you for a catastrophic event.

As you pay them off you could certainly “self insure”. But could you lose it all if something like a natural gas explosion killed a family of 5? Might they not want $20 million? 

I'm certainly not saying that's likely. But how about some stupid event we can't think of that causes you to be sued for millions. I don't know if you could get an umbrella policy that would cover self insured homes. If so that would make me feel better about the idea. And please don't let someone convince you 10-50-100 LLC's would protect you. In these cases you're going to be sued personally as well as the LLC's as you will have been involved personally in events leading up to the loss.

Ps. Maybe you can find someone with very large deductibles? $10k+ for cheap?

 Are you saying you want to set up your own insurance brokerage?

But you would have to have the cash set aside in escrow to pay off the entire property if there was a disaster. Kind of defeats the purpose.

If you have a $500k property they won’t just accept $100/mo is going toward “insurance”. You’re going to need an account with $500k sitting in it to pay them off if the house is destroyed. You’re better off just putting the $500k in a cd and getting paid $2k/mo in interest and spending $100 of that on insurance. 

Imagine you put the $100/mo aside telling the bank it’s “insurance”. 2 years later the house burns down and the account has $2,400 in it. The bank says your “insurance company” needs to pay off the $450k mortgage balance, where’s that money coming from?