Keeping Premiums Affordable
It's no longer simply death and taxes that are the givens of life. You can add rapidly escalating insurance costs that greatly exceed the yearly increase in cost of living. Do everything you can to keep premiums affordable by taking a few precautionary steps.
Never buy insurance from a friend or relative without knowing what's out there. Do your research on a computer, if you like, but don't buy from a company solely advertising on the Internet. All the well-known insurance companies will have websites, but you may also find websites, pop-up ads, and spam e-mails from fly-by-night operations. You want a reputable insurance company that will pay your claims. Know who you are dealing with. Find out which insurance companies have the highest quality ratings from Consumer Reports and A.M. Best Company, then talk to agents from those companies.
Don't limit yourself only to the large insurance companies that spend a lot of money advertising. An independent agent or insurance broker might find you a better deal at a smaller insurance company.
Select the Right Agent
You want an agent who will give you good service, one who knows about insuring rental properties and can give you good advice about what's available and what you should purchase. Your agent should also be willing to spend time talking to you and call when there's an important change in the industry that affects you personally. And make sure the agent is covered by errors and omissions.
Be a Negotiator
You don't have to take the first offer. Negotiate with several companies; even after you've settled on one, try negotiating some of the features in the policy. Can you trade off something you don't need for something that isn't included?
In order to be good at negotiating, be sure you know what you're talking about. Be knowledgeable about the different coverages available. Find out how different companies will underwrite your policy. Find out what categories each company is using to determine the rate. Some will base rates on your claim history over the last three years. Others may look at your credit standing, a practice that is now being challenged in some states. These providers say that credit rating is a good way to predict potential losses, and that the lower the score, the more the company will end up paying out. If credit scores are what's important, find out what criteria they use to determine the credit score and how much weight they give it in determining your premium. It may vary greatly from company to company.
Practice Preventive Maintenance and Repairs
Insurance carriers love collecting premiums from low-risk clients. You can put yourself into that category by doing preventive maintenance and repairs religiously. It not only reduces your liability for negligence claims by your tenant, but also will have a positive effect on your bottom line for insurance.
Insurance premiums are a deductible business expense, but why pay top dollar in the first place? Do everything you can to reduce your risks so you can keep your premiums as low as possible.
Put a sticky note on your maintenance and repair schedule that asks “Insurance benefit?” It will remind you to think about insurance any time you do work on or around the house. It's certainly worth a call to your insurance agent to find out.
Give Insurers Detailed Information
You want to let insurance companies know what you have done to reduce your risk for insurance claims. You can't benefit from the dollar savings on the cost of premiums unless you toot your own horn. Let your agent know when you put on a new roof, upgrade the furnace, or replace old water pipes and frayed electrical wiring. Tell them about your security measures, such as providing fire extinguishers, putting in deadbolt locks, inspecting locks, doors, and windows. Let them know that you regularly inspect the building for security as well as doing routine maintenance. If you've installed security alarms or live in a low-crime area, let them know.
Let them know if you have yearly furnace inspections or have had the fire department or gas company inspect your property for potential hazards and trouble spots. Give the agent a copy of the resulting reports.
Keep Track of Premium Increases
Never purchase a policy, stick it in a drawer, and forget about it. You want to keep track of how much coverage you have, when the policy is up for renewal, and what the premium is.
If you've ever had two insurance companies battle one another about who will cover what and how much, you know what a headache that can be for the policyholder. So if you need more than one policy, get both from the same carrier. That will eliminate hassles.
You can expect premiums to go up each year. It's the nature of business and a fact of life when you live in a litigious society. But there are increases — and increases. If yours falls into the latter category, it's time to shop around again.
Forget the Small Stuff
The days of calling your insurance company to pay for fixing a broken window are long gone. Insurance companies don't look at the total payout in a year or three years. They track how often they were called. So it's not worth the risk to phone them about the small stuff. If, for example, after you pay the deductible on your policy, you stand to gain less than $500, it's not smart to let the insurance company know about the loss. You can't predict whether you'll have another claim for thousands of dollars within the next three years. And once you call them a second time, expect the surcharge on your policy to go up 50 to 100 percent — that is, if your policy isn't cancelled.
Increase Your Deductibles
To reduce premiums, always increase your deductible. If the insurance company knows it will not be getting claims on the first $500 or $1,000 — whatever you decide you can handle out-of-pocket or from the money set aside in your maintenance and repair account — premiums will be lower. Insurance agents advise making the deductible $1,000 on a home valued at $100,000 or above.
Look into Taking Out Multiple Policies
Sometimes it's cheaper to put all your eggs in one basket. Shop around and find out from different insurers if they will lower the cost of premiums if it gets all of your business. Homeowner's and car insurance might make an attractive package. Ask how much you will save. But also ask if you would have any additional benefits or risks for taking out multiple policies with the same insurer. You want to make sure you're comparing apples to apples.
Don't duplicate coverage in any of your policies. That might lead to squabbles between different insurers about who actually is responsible for what while you're left waiting to make repairs. If, however, your policies do overlap, eliminate the hassle ahead of time by getting them from the same insurance company.