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Property Insurance

nsalama

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Hello,
When you get property insurance, do you typically pay the year's insurance in lump sum? or do you finance, and pay on a monthly basis?
Thanks for your insights.
Best Regards,
Nabil
 

Antoine Palmer

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When you set up a monthly plan for insurance, the insurer uses an interest rate in setting the monthly payment amounts. The rates are generally around 12-14%. We tend to pay our insurance up front for this reason. Check the rates with your provider and you can make your decision on that basis.
 

Sherilynn

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I have never had interest charged, but there is normally a service charge, the size of which is decided by the company. With my previous broker & insurer, the fee was 5% of the total premium. With my current companies, the fee is so small it makes more sense to go with monthly payments.
 

nsalama

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Thank you all for your replies. I have been going with the monthly automatic withdrawals, and am being charged 8% for the service. As I am up for renewal, I wanted to see what other successful investors were doing :)
 

RE123RE

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I have never had interest charged, but there is normally a service charge, the size of which is decided by the company. With my previous broker & insurer, the fee was 5% of the total premium. With my current companies, the fee is so small it makes more sense to go with monthly payments.
Hi,
Is this interest/service charged supposed to be clearly mentioned on the renewal document from the insurance company?
I only see the 'Renewal' amount and 'Sales Tax' which is 8% of the Renewal amount. We are paying monthly and no other fee is mentioned on the renewal letter.
Is the interest probably part of the 8% 'Sales Tax' shown? Or is it hidden in the 'Renewal' amount - where moving from monthly to annual payments would reduce the 'Renewal'?
Thanks
PS. If your service charge is reduced when you switch from monthly payments to annual, then I think it is a kind of an interest charge even if they do not call it an interest charge
 
Last edited:

Sherilynn

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Hi,
Is this interest/service charged supposed to be clearly mentioned on the renewal document from the insurance company?
I only see the 'Renewal' amount and 'Sales Tax' which is 8% of the Renewal amount. We are paying monthly and no other fee is mentioned on the renewal letter.
Is the interest probably part of the 8% 'Sales Tax' shown? Or is it hidden in the 'Renewal' amount - where moving from monthly to annual payments would reduce the 'Renewal'?
Thanks
PS. If your service charge is reduced when you switch from monthly payments to annual, then I think it is a kind of an interest charge even if they do not call it an interest charge
The sales tax is likely provincial or harmonized sales tax (not sure where you are). Service charges are normally clearly stated, but if they are included in the premium, and the premium is acceptable, then that shouldn't be an issue. Your broker should be able to clarify for you.
 

RE123RE

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The sales tax is likely provincial or harmonized sales tax (not sure where you are). Service charges are normally clearly stated, but if they are included in the premium, and the premium is acceptable, then that shouldn't be an issue. Your broker should be able to clarify for you.
Hi,
Location is Ontario.
Looks like you are correct as usual - 8% sales tax is applied on insurances in Ontario.
In the case mentioned above, the policy is with TD Insurance. We worked with them directly and no broker is involved (Maybe we should start working more with insurance brokers)
Yes, will just ask TD directly.
Thanks
 
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Cory Sperle

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I have never had interest charged, but there is normally a service charge, the size of which is decided by the company. With my previous broker & insurer, the fee was 5% of the total premium. With my current companies, the fee is so small it makes more sense to go with monthly payments.

Why is that? a fee is a fee so why not pay lump sum?
 

RE123RE

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a fee is a fee so why not pay lump sum?
Hi,

The following example, really 'Interest rates 101', should help you understand why:

Say you can pay 1.2 Million now
Or
100K per month for 12 months with only 0.1% fee (=0.1% x 1.2 Million = $1,200)

Do you really prefer paying 1.2 Million lump sum in order to avoid $1,200 fee!?
How about putting the money in the bank getting around $15,000(!) interest from the bank instead of trying to save the $1200 fee.

As you can see and Sherilynn mentioned, below certain amount it just makes sense to go with monthly payments and pay the fee.

Thanks
 
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Cory Sperle

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Hi

Thanks for the math lesson

By your logic why not do equalized utilities, and property tax payments. It's only 0.1 % on all of them? Because your running a business not investing for interest. An expense is an expense and as an owner you must minimize your expenses and preserve your ROI, hence property value. But you already knew that.
 

RE123RE

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Hi

Thanks for the math lesson

By your logic why not do equalized utilities, and property tax payments. It's only 0.1 % on all of them? Because your running a business not investing for interest. An expense is an expense and as an owner you must minimize your expenses and preserve your ROI, hence property value. But you already knew that.
Hi,
What's the connection to equalized utilities? - that's a totally different question beyond the scope of this forum.
Are you paying property tax annually? Of course we pay it monthly. What would be your fee if you switched to monthly?
Thanks
 
Last edited:

Cory Sperle

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Hi,

I suggest that you re-read this thread. There is no mention of interest rates, only saving money on your insurance by paying lump sum vs. monthly.

The following example, really 'Business 101' should help you understand why:

As a business owner you MUST minimize your expenses as much as possible. You can easily eliminate this fee by paying a lump sum, hence be responsible and reduce your expenses. Often you can reduce fees by not having your utilities equalized, and/or by not paying your property taxes monthly. Your 'who cares' approach to a small fee matters to your investors.

Net operating income = income - expenses, the lower the expenses the higher the NOI

Property value = net operating income/ CAP rate
Thanks
 

RE123RE

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Hi,
Ok so you didn't like how I said it as it is - 'really Interest rates 101' :)
Sorry, lack of math skills or not understanding the world of alternative (lower) costs, is not an excuse to making less money for your business partners.
Glad you understand the value of a mortgage and how it increases your ROI, not thinking buying cash is better due to interest savings.
Thanks
 
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