Commercial versus Personal REI Insurance
| | Tuesday, February 07, 2006 @ 11:51 AM EST
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Contributed by: Tim Norris
Tim Norris Properties
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Short but pointed information regarding why commercial insurance is usually a better value than personal insurance for your real estate investment(s)...
I frequently see and hear many questions and comments regarding the best way to insure real estate investment properties. Though there are numerous types of "deals" (lease-options, sub2, straight rentals, etc...), I focus on the problematic and many times confusing issue of "commercial" insurance and how it compares to "personal" insurance. The list here represents some of the
more important insurance-related points that merit exploring as one grows their RE business.
In no necessary order, here are reasons I believe that commercial insurance is, in most cases, a better VALUE than personal insurance:
1. Many commercial forms will include coverages such as rental loss and additions and alterations coverage.
2. To increase liability on a commercial form from the typical $300,000 to even $2,000,000 is minimal premium (less than $50 per year for the entire contract---regardless of number of units) with many carriers.
3. The generic pollution exclusion found on most personal type contracts is addressed by some commercial policies to consider/cover pollution that emanates from a heating source (i.e. carbon monoxide). Most personjal contracts do not.
4. On a master (AKA "blanket") policy, as you grow and add properties, the rate drops proportionately. Personal policies only insure one property per policy.
5. Related to #4, in the event of a catastrophe, such as a tornado, the deductible applies once for the occurence, not per location.
6. The deviations to carry higher deductibles are cost-effective under a commercial policy much more so than most personal contracts. In other words, carrying a $2500 deductible on the commercial policy may save 15% of premium versus a $1000 deductible. On a personal policy, the same change may only generate half the savings...Gives some food for thought on consideration of catastrophic deductibles such as $10,000 or more, especially as you add units.
7. Many insurers limit the number of units they will insure under the personal contracts, and as you've discovered, will not consider non-personally owned properties for coverage. I don't like the idea of the insurance company limiting my asset-protection options in this manner.
8. The "fire and hazard" policy you have may be a named-peril policy only. The commercial policy can and should be written on an "all-risk" form. "All-risk" simply means that unless a peril is excluded, it is covered.
It really boils down to much more than PRICE, when one researches insurance for their property(ies). The best way isn't always the cheapest way. Understanding how the insurance really works goes a long way in determining what really is the best value.
Though insurance is probably one of the few, if not only things on which we spend money, but never want to use. However, you had better be comfortable with what you have, BEFORE that claim occurs...
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