How you can avoid making them.
Number One – Don’t look at just the cost of the insurance policy. Most investors probably don’t buy used tires with re-treads on them. They know the value of paying extra for Michelin or Dunlop or other top-quality tires. Better tires cost more, but provide better safety and service in the long-run. The same logic applies to an insurance policy. In most cases you ‘get what you pay for.’ Yet many real estate investors only consider the price. The policy may have exclusions and only cover a few things, but it’s amazing how many investors make their selection decision based upon the cost alone.
Number Two – Always check the A.M. Best rating for the companies you are considering. The A.M. Best company of Princeton, New Jersey, is the premier company that collects data and evaluates the financial and operating strength of all insurance companies in America. But even using A.M. Best, you need to be aware of one thing: A.M. Best operates with revenues received from those very same insurance companies that they are evaluating. From a practical standpoint, this means that A.M. Best cannot be too harsh or too hard on those companies. That’s why nearly all insurance companies receive some kind of “A” rating from A.M. Best. Yes, over 91% of all property & casualty insurance companies have an A.M. Best rating that is in the “A” category. This is why it is very important to know that there are 4 different “A” ratings and a company rated A- is not nearly as strong as a company that is rated A++. In the most recent ratings, there were 149 different property & casualty insurance companies with an A++ rating. Why wouldn’t you want to choose an A++ company? You will almost always find the A.M. Best rating on the computer web site for the insurance company. And yes, even companies with an A- rating (or lower) proudly boast of their rating on their web site.
Number Three – Location, Location, Location. Even with remote access, satellite photography, and multiple web sites with lots more data, there is still no substitute for “boots on the ground” experience right where your property is located. If there is a history of wildfires, flooding, or sink-holes in the area where you are looking to buy, a desk underwriter in Atlanta, Georgia probably will not be the right person to alert you to those facts. In the future, computerized underwriting will get a lot better, but they’re not there today.
Number Four – Policy features that should be “must haves.” Over the years, the insurance industry has created standard “packages” of popular coverages and today, these are included in most homeowner policies. But while policies for “owner-occupied” personal residences often come with those important features built-in, that is not yet the case with investor-owned, tenant occupied, rental properties. Investors need to be insurance savvy or have a superior agent who is looking out for their best interests, if they are to have strong features and better coverage. Examples of these features are coverage for building code changes, higher lawsuit protection, coverage for wrongful eviction and invasion of privacy, and policies that automatically include the owner’s agent or property manager. Many of these ‘options’ cost almost nothing to add, but the investor or their agent must take that step.
* * * * * * CLARK SANCHEZ has been an Arizona insurance agent for nearly 39 years and has been a Vendor-Affiliate with AZREIA for over 15 years. You can contact Clark if you have any insurance related questions at firstname.lastname@example.org or (602) 803-2179