When to involve our insurance company?

[Nir]

Hi,

When do you submit a claim to your insurance company? when you expect the repair cost to be higher than $3,000? or is it $5,000?
(assuming you believe damage is covered of course)

I understand after 3 claims they may cancel us so we should all think twice before calling our insurance company(!)

It would be interesting to hear from people whose insurance was unfortunately canceled by their insurance company - why was it cancelled? what did you, the investor, do about it? Is the fact that other insurance companies have visibility to your claims history, a big issue when looking for another company?

I only had one claim so far. Just trying to understand how to prevent issues or deal with them better when they come..

Also, real life example: crack in toilet caused leakage and mold on bathroom flooring. requires new flooring and toilet replacement. tenant did not inform landlord of crack on time. am I correct saying in this case it is probably NOT a good idea to submit a claim but rather fix yourself? and perhaps ask tenant to share costs.

THANKS.

 

[brentdavies]

Please ask your self the basic question, what is insurance for?

Is it minor damages (under $10,000) caused by tenants and others ?

or is to cover the worst cause disasters such as fire and flood? The claims that would drive you into bankruptcy if it happened and no insurance.

Insurance companies look at the risk of the insurable property, then the history of the owner. Yes you are right, too many small nuisance claims and you become uninsurable.

For the past 20 years, we had a low deductables (under $2000), and found we never completed a claim for small amounts. By the time the insurance responded, got the contractor quotes, and get geared up to do the work, we could have completed the work and rented the unit. Found small claims a waste of time. Time was our enemy.

But 8 years ago, a fire in a 12 suite apartment, caused by an electrical fault inside a suite, resulted in severe fire damage to 2 suites and extensive smoke damage to the rest of the building. All the residents were displaced in the middle of the winter. The entire building was not rentable for 6 months while the repairs and restoration were completed.

Insurance picked up the cost of the fire damage, lost rental income and best of all, the new code upgrades for fire and safety. The building was greatly improved after the fire and extremely rentable. The owner was not out 1 penny because of the fire.

In my view, insurance is for the disasters, and we have a $5000 deductable on all policies.

 

[Nir]

Thank you Brent, great feedback. Very interesting!

My understanding from what you are saying is there is no way around it - insurance companies will not let you save a lot of money by submitting many JUSTIFIED BUT SMALL claims.

What doesn`t make sense to me is what one insurance company explained to me: that it does not matter if you have 1 property or 20: 3 claims in total in 3 years will trigger a policy cancellation! because it goes by policy #, not number of units.

It sounds wrong logically for the insurance company NOT to adjust their "3 claims in 3 years causing cancellation" policy, for a person who owns 50 units AND PAYS THE INSURANCE COMPANY MUCH MORE – as he/she pays for each additional unit.

Did I not understand what the insurance company told me, did the insurance agent make a mistake explaining it this way OR is there a way around it that I am not aware of?
Perhaps to insure under different policy numbers(?) or under a few corporations each owning different properties(?) many legal and perhaps smart ways to do it.

Brent, even your way with a $5k deductible, what if by coincidence you have 3 major issues, like your fire example, in 3 years? EXPECTED(!) if you have 100 units for example. Will this mean the end of your RE career? well, I`m sure not. I still have a lot to learn about Insurance.

Regards,
Neil

 

[brentdavies]

I never heard of the 3 strikes your out in insurance. I have never had a policy cancelled due to claims. Just policy premium goes way up.

Some friends have had bad years in claims and have not been cancelled. Depends on the insurance company.

Some insurance companies do not like rental properties. The standard residential policy may not be the right type of insurance for the single family house rental.

The majority of my insurance policies have been commerical policies, not consumer policies.

The exploding crane toilet tanks are a common water damage claim. Same with frozen heating pipe claims in apartments. Water damage claims are the most common property damage claim. Slip and falls law suits claims are high on the liability claims.

Once again, what is insurance for. the everyday, someone stained the carpet, or the fire or flood.