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I need some help with an insurance problem on a 4-unit rental property. I purchased new insurance for my multifamily rental property two years ago. Instead of insuring the property for what I paid for it--let's call that InitialPriceX--I decided to insure it for TWICE InitialPriceX. The agent convinced me that would be better in case of a loss.
So, I insured the property for 2InitialPriceX, more than 2X my mortgage.
Then my property's tax value DRAMATICALLY increased last year. I suddenly had to pay much more in property tax, and my other expenses increased as well. Well, there is only so high you can raise the rent, so to save money, I reduced my coverage to InitialPriceX.
TODAY, my insurance agent called me and said he is WORRIED that the insurance company will cancel my insurance because I am UNDER INSURED. (What in heavens?!! Expletive Expletive etc.) He says that the Insurance Company has had an inspection and they believe it will cost FIVE &%$&(* TIMES the cost of the property to replace it.
Apparently he want's me to increase my coverage to 5*InitialPriceX.
As far as I am concerned, IF I insured the building for THAT much, I would just BURN IT DOWN and keep the money!! I also REFUSE to pay any more for insurance. Do I look like a Mrs. Money Bags? Is this standard practice, or is this guy calling me because he needs more commission and wants to sell me coverage I don't need?
If a catastrophe completely DESTROYS my STONE building (if there is anything that can destroy stone, believe you me, I am NOT covered for it anyway), I just need enough to pay off the loan. I have MORE than enough coverage for that! Please help me. Looking for new insurance is so painful and right now I am overwhelmed with School, Work and my other properties right now so I am FREAKING out.
I have several old buildings that I rehabed. They are now worth much more than what I paid for them. I do insure them for replacement cost. That does not include the value of the land and utilities. So rebuilding the building would not include those items. I would look at getting insurance enough to cover cost of rebuilding if there is a catastrophic loss. It does not need to be the total value of the building, just rebuilding what is there. The mortgage company only wants the coverage to include thier interst.
By the way, if there is a fire, the stone walls can be severly weakened by heat and would have to be replaced.
I hope that helps.
I have several old buildings that I rehabed. They are now worth much more than what I paid for them. I do insure them for replacement cost. That does not include the value of the land and utilities. So rebuilding the building would not include those items. I would look at getting insurance enough to cover cost of rebuilding if there is a catastrophic loss. It does not need to be the total value of the building, just rebuilding what is there. The mortgage company only wants the coverage to include thier interst.
By the way, if there is a fire, the stone walls can be severly weakened by heat and would have to be replaced.
I hope that helps.
Hi Shane,
Thanks for your response. I don't want to insure for the replacement cost, though. I am only concerned with paying off the mortgage if there is a catastrophic loss, as you say. My main concern is just having insurance that will satisfy my mortgage company.
Path of least resistance is to insure for 100% replacement cost.
Your time and effort to search for reduced coverage will consume any premium savings.
I suggest your time would be better spent finding less expensive premium but on a full coverage basis.
Get an objective estaimate of the 100% replacment cost.
Your agent/broker should have access to MSB BVS, this is used by most underwriters.
Do not accept estimates based M&S Commercial Estimator or MVS; these are not intended for insurance purposes.
You can ask for limits below the 100% RC but you have to report 100% values to avoid co-insurance hassles.
Be aware this isn't in the wheelhouse for mom&pop agents and small commercial underwriters.
The bank will make you carry enough to cover their interest.
Don't be looking for 20% discount for insuring only 80% of the value (more like 9% discount), 50% limit is only going to generate ~20% discount.
Someone will suggest coverage on an actual cash values basis.
This may not be acceptable to the lender - consider your time arguing.
I've never known anyone to be satisfied with this recovery unless the building was already slated for demolition.Good Luck.
Last edited by zambendorf; 11-30-2008 at 07:59 AM..
Reason: typo
Path of least resistance is to insure for 100% replacement cost.
Your time and effort to search for reduced coverage will consume any premium savings.
I suggest your time would be better spent finding less expensive premium but on a full coverage basis.
Get an objective estaimate of the 100% replacment cost.
Your agent/broker should have access to MSB BVS, this is used by most underwriters.
Do not accept estimates based M&S Commercial Estimator or MVS; these are not intended for insurance purposes.
You can ask for limits below the 100% RC but you have to report 100% values to avoid co-insurance hassles.
Be aware this isn't in the wheelhouse for mom&pop agents and small commercial underwriters.
The bank will make you carry enough to cover their interest.
Don't be looking for 20% discount for insuring only 80% of the value (more like 9% discount), 50% limit is only going to generate ~20% discount.
Someone will suggest coverage on an actual cash values basis.
This may not be acceptable to the lender - consider your time arguing.
I've never known anyone to be satisfied with this recovery unless the building was already slated for demolition.Good Luck.
Well it turns out my insurance company tried to charge me for my teeny tiny itsy-bitsy building the same amout of premium as my friend's commercial building with twice the coverage! (simmering) Grrr. Well, I shopped around and I got another company thank GOD with 1/2 the premium and a more realistic replacement cost. Now if only I could do something about the property taxes...
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