What you need to do and how to make it cost you nothing!
Before 2017, the very worst fire in California history was the “Oakland-Alameda-Tunnel” fire in October of 1991. Just under 3,000 homes were lost in that fire. But fires over the last 14 months in Northern California, have burned over 8,000 homes, and that does not include the recent fires in Ventura and Santa Barbara counties, north-west of Los Angeles (complete numbers not yet in).
California residents are going to see a significant increase in their cost for home insurance and probably stricter underwriting requirements. That gorgeous forest home with a tree growing right up through the living room, may become un-insurable as most major insurance companies use satellite photography to confirm a clearzone around most rural homes. These fires are a giant “wake up call” for homeowners who thought “it could never happen here.”
A significant impact on Arizona is an increase in the cost of both building material prices as well as the cost of skilled labor to build a home or make repairs. Experts predict that construction costs will increase 1020% by the end of 2019. Costs for plumbing, electrical, and HVAC have already begun to move upwards, and with recent trade tariffs already pushing lumber prices up, the cost for construction lumber from Canada is on the rise. On top of material cost increases, many construction laborers are going to California for higher pay and steady work. Some people say the ‘labor drain’ is similar to recent years when North Dakota was pulling people from all over the USA, or 30 years ago when Alaska did the same.
But you already own that investment rental property, so all this probably will not impact you . . . right? Wrong!! Now is the time for some “R and R,” not rest and recuperation. We’re talking about “REVIEW AND RE-CALCULATION.” This is when your insurance agency earns their pay, without your having an active claim. Call your agent and ask to have your properties reviewed to make sure there is enough insurance coverage to cover the full cost of repairs, or a complete re-build should that become necessary. This may mean re-calculating the coverage amount on each of your investment homes.
There’s a good chance that your agent will recommend a small increase in the “buildings’ coverage in your policy. Even policies that include an “inflation index increase” never anticipated cost increases like this. So, how can you increase the amount your policy pays to repair or rebuild your property, and do so without increasing your outlay for insurance? The answer lies in your policy deductible. If you raise your coverage limits, you can soften the impact of any premium increase to your policy, by considering a higher policy deductible at the same time. And, remember that, if you do have a claim and you do have to pay that deductible, it is a tax deductible expense on your Federal return because it is an income producing investment property (not true for your personal residence.)
To summarize, call your insurance agent and ask for a complete review of every property you own. If you need to increase the “buildings” coverage, ask what the savings would be with a higher policy deductible. Remember: if you Review and Re-Calculate, then you can Relax!!
* * * * * * CLARK SANCHEZ has been an Arizona insurance agent for almost 39 years and has been a Vendor-Affiliate with AZREIA for almost 15 years. You can contact Clark if you have any insurance related questions at firstname.lastname@example.org or (602) 803-2179