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 Why is the Dwelling Coverage amount so high for your home or real estate investment? I get this question every time I quote for insurance coverage. The answer is based upon an insurance term: Replacement Cost (RC). Replacement Cost is what the insurance carriers have calculated to be the cost to "replace and/or rebuild" your property to the exact specs, within local code guidelines, to what it was before the total loss. How the carriers and their affiliated software that calculates these costs come up with such high figures is often explained in relation to "catastrophic" losses that have not only affected your property but your neighbors, i.e. Tornado, Hurricane, etc in which the costs of goods and service, based on rudimentary supply and demand, would incur exponential cost increases.
In today's Real Estate market in which home/property values have dropped dramatically, the calculated "Replacement Costs" have not. After all, just because the value of a particular good has been devalued does not mean that the overall economy is not incurring "inflationary" trends. Look at the cost of milk; it didn't go down with the value of your property. Nonetheless, insured's now find themselves paying for insurance coverage that often exceeds the value of their homes and/or investments.
So what can you do to lower the cost of insurance while maintaining an appropriate level of insurance coverage?
For Homeowners they haven't a choice if they want to be insured by a major insurance carrier. The penalties for not insuring at Replacement Cost on a Homeowner policy will make all those premiums paid to the insurance company with nothing to show even more futile should you have to make a claim. The good news is that it is such a highly competitive market place that in spite of the enormous amount of coverage relative to the market value insured's are getting more bang for their buck.
Now for my Real Estate Investors: You have choices and it's important to understand what they are and their associated impact.
Here are your choices:
1. Replacement Cost- What "the Insurance companies believe" it would cost to replace property in its entirety at today's prices
2. Actual Cash Value- A depreciated value based upon the Replacement Cost
3. Agreed Value- True "Fair Market Value"
I've just explained what Replacement Cost is essentially. But Actual Cash Value is a bit of a misnomer. In insurance lexicon Actual Cash Value is really a depreciated figure based upon Replacement Cost. What make Actual Cash Value lower is that it is often based on the "age" of the structure/property and the depreciated aspects of the building materials associated with older buildings. What Actual Cash Value is NOT is a relative term to Fair Market Value.
If you wish to insure for Fair Market Value you must accept a policy written at Agreed Value. Not all carriers will allow for such coverage, especially if there is a large disparity between Replacement Cost and Agreed Value/Fair Market Value. Fortunately for Real Estate Investors in Ohio T.A. Swain has access to companies that will insure at Agreed Value with Actual Cash Value and even Full Replacement Cost Value to your claim; up to the Agreed Value (Level) of coverage accepted on your insurance policy less your deductible.
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Posted Wednesday, October 26 2011 8:50 AM
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I recieved a call from a fella who was complaining that he couldn't get insurance for his home and auto. I told him we have specialty markets for hard to place risks. I said I'd come out and take some pictures then do my research to see what I could do for him. After a seemingly endless drive into the middle of nowhere this is what I find:
 Hmmm....interesting. He called it his mansion. "It's something, alright," I thought to myself.
The family car.
Dual Purpose Riding Machine.
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Posted Tuesday, February 01 2011 2:45 PM
Tags : insurance, fail, hard, place, risks, carriers, home, auto, motorcycle, lawnmower, mansion, limo
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Vacancy Permission means less hassle for you.
 Due to a variety of reasons, home rental properties often are temporarily vacant.
This presents a hassle for you. You have to cancel a dwelling fire policy and then have your insurance agent write a vacant property policy. When the building becomes occupied, you have to then have your agent rewrite the dwelling fire policy again.
It doesn’t have to be so inconvenient for you.
By adding a Vacancy Permission endorsement to your dwelling fire policy, you can cover the “vacancy gap” that landlords so often face. This endorsement saves you time and money—and the hassle of canceling one policy to write another.
For more information click here and find out:
- From burglary, vandalism and squatters to unnoticed damage that compounds costs, there are many reasons why a standard homeowners policy is not designed to protect a vacant property.
- You should never ignore changing your standard policy when you have a vacancy - hoping your insurance carrier won’t find out.
- How a vacancy permission endorsement can be easily added and removed as needed, without a cancel/rewrite or endorsement notices.
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Posted Thursday, January 27 2011 11:22 AM
Tags : investment, real estate, landlord, tenant, vacancy, insurance, claims
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TRUE news story. NOT a joke. Maybe.
A lawyer in Charlotte, NC purchased a box of very rare and expensive cigars, then insured them against fire among other things. Within a month, having smoked his entire stockpile of these great cigars and without yet having made even his first premium payment on the policy, the lawyer filed a claim with the insurance company.
In his claim, the lawyer stated the cigars were lost "in a series of small fires." The insurance company refused to pay, citing the obvious reason: that the man had consumed the cigars in the normal fashion. The lawyer sued....and won! In delivering the ruling the judge agreed with the insurance company that the claim was frivolous. The judge stated nevertheless, that the lawyer held a policy from the company in which it had warranted that the cigars were insurable and also guaranteed that it would insure them against fire, without defining what is considered to be "unacceptable fire," and was obligated to pay the claim. Rather than endure lengthy and costly appeal process, the insurance company accepted the ruling and paid $15,000.00 to the lawyer for his loss of the rare cigars lost in the "fires."
But... After the lawyer cashed the check, the insurance company had him arrested on 24 counts of ARSON! With his own insurance claim and testimony from the previous case used against him, the lawyer was convicted of intentionally burning his insured property and was sentenced to 24 months in jail and a $24,000.00 fine.
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Posted Saturday, January 22 2011 1:31 PM
Tags : insurance, claim, fail, fire, lawyer, money
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