Legacy Wealth Holdings

2 Insurance Hacks to Save You Money

Insurance is not good right now. Our team is renewing all of our insurance policies and across the board, insurance has gone through the roof. Some of our policies in just the past 24 months have doubled, tripled, even quadrupled in the amount of premiums that we have to pay for certain properties.

When you own rental real estate, you’ve got to realize that insurance is one of those things that directly impacts your net operating income. And if properties, like businesses, are valued based on the income approach – meaning you take income minus expenses to get the Net Operating Income – then having your expenses rise adversely affects your NOI, which adversely affects the value of your business or the value of your property. Since insurance is going up, it’s just eating into the NOI.

So what do you do about it? I want to share a couple of hacks that we’re looking at on our own insurance policies and the reasoning behind it in order to help save you some money on your insurance premiums as well.

#1: PROPERTY IMPROVEMENTS

Quick story: I live on a beach in Charleston, South Carolina. Because I’m on the ocean, I have substantial insurance premiums on my primary residence. I have essentially two policies: there’s the main property policy, which includes wind, hail, storm, named storms, and all that stuff, and then there’s a flood policy. Because I’m on the beach, we “have” to have a flood policy.

Right now, my regular insurance is something like $12,000 a year. It used to be around $16,000 TOTAL– just two years ago. Now just the property is $12,000 and the flood insurance is $8,500, for a grand total of $20,500.

A few weeks ago, we had a hurricane come through Charleston, literally two days before both of those two policies came up for renewal. This hurricane brought the fifth largest storm surge in Charleston history (since they started recording it 200 years ago). It came close, but the flooding never actually got into my yard. So I’m thinking: I’m paying $8,500 a year for this flood policy that’s pretty unlikely.

By the way, my deductible is $10,000. So even if a flood did create less than $10,000 of damage, I couldn’t claim it. That policy also didn’t cover most of the stuff that’s on the ground level. My house, like a lot of the houses in Charleston, is elevated, so none of my actual belongings or dwelling spaces are on the ground floor. There are a couple of things underneath the house, but that’s not covered at all, not even the garage doors. And it caps at $250,000 a year.

So I’m looking at this and I’m thinking I don’t even have a claim. I’d have to have flood levels that hit 12 feet high attacking the lower level of my house in order for this to even pay out. And it’s only $250,000! If my house is probably going to fall over from 12-foot flooding, at that point $250K doesn’t do me anything anyways. 

Here’s the idea: I talked to my insurance guy, Drew Maconachy, and I said, “Dude, I’m looking at my policy and I’m wondering like, why am I paying for this? My lender doesn’t require it. It doesn’t cover anything that’s on the ground level. The fifth highest storm surge in Charleston history didn’t even get into my yard. And it’s $8,500 a year with a $10,000 deductible with only $250,000 of coverage. Like, well, why? I should just light this on fire, don’t you think?”

 He’s like, “Dude, absolutely.”

“If you don’t need it, don’t do it,” he said. “You’d be better off investing that $8,500 into improvements in your property that would then reduce the risk of having an insurance claim.”

He asked me, “How many sandbags can you buy for $500? Just fill those up, put them around the ground level.”

Doing things like that or taking some of the money and putting it in a reserve to then pay for any sort of damages is a better use of your money than an insurance policy that won’t even cover your property. If my pool heater gets busted and I have to spend another $5,000 to get a new one, for example, I’d have an account of reserves that I’m not lighting on fire by giving it to the insurance company. So that’s number one. I was able to eliminate that flood policy and save $8,500 a year.

#2 RAISE THE DEDUCTIBLE

The second thing was going over to my main policy, which was about $12,000.

I said to Drew, “if I were to file a claim right now, they’re not going to renew me.” 

He said “You’re absolutely right. It’s happening nonstop.”

All right, so I’m not going to file a claim if it’s anything under probably $25,000. So why not just take my deductible and raise it to $25,000 instead of just $10,000?

So we raised it up and I saved almost $2,000 per year in premiums because I increased my deductible.

Why?

Well, I can’t file a claim if there’s $16,000 worth of damage, because then they’re just going to drop me, and I would have to pay more in premium anyway.

If you have the ability and the means to do this and you know you’re not going to file a claim, why not increase your deductible in order to lower your premium? And again, let me take that $2,000 I’m saving and leave it in a reserve account or put it in my pocket or make other improvements to the property in order to reduce the risk.

This isn’t only something for your primary residence!

I’m also looking at it from an investment perspective. For example, we just had a renewal that came up on a 36-unit building that we own in Cleveland, Ohio. Now this is a 1970s vintage building, so it’s got older electric, older plumbing, older roofs, right? When the insurance company came back, there were a couple of things that were never issues in the past, and all of a sudden they became issues. For example, we had these things called Stab Lok breakers on a couple of the breaker boxes, and it cost a few thousand dollars in order to change these things out. We maybe had ten of these breakers total, but our insurance policy jumped up by like $15,000 or $20,000 because of these breaker boxes.

First we called the insurance company and they told us, “well, it’s because of this. If you didn’t have this, yeah, your premium would be here.”

We asked “What if we make that improvement? Would it drop the premium?”

They said yes.

So we called up an electrician and got a quote to change out all ten of the breakers (which would be a lot less than changing out one).

I think it ended up costing us, let’s call it $20,000 in order to make that improvement to our building, which then saved us about $25,000-$30,000 on an annual recurring expense on the insurance. Instead of spending that money and again, lighting it on fire with the insurance company and never seeing it again, we were able to take those dollars and allocate them towards improvements in the property AND we reduced our premium. By doing that, we also have a better property that has more value whenever we go to sell it in the future because we made these additional capital improvements to the property.

So we’ve been going through all of our insurance policies and asking ourselves a few questions. What are the premiums? What are the deductibles? Can we raise the deductible? Are there coverage limits that don’t make sense because they’re too low? Can we eliminate it altogether or we need to maintain it or what does all that stuff look like? And we’re going property by property and asking the insurance company, how can I reduce my insurance premium? What improvements can I make to the property that you see as risks? And does it make financial sense to do that?

So go through every single insurance policy, with your team, with your insurance agent, and see where you can save a couple of bucks. Hopefully this is a way that you can attack some of those things that are eating into your pocket right now.

We made a video on this! Watch it on the Legacy Wealth YouTube channel here: https://www.youtube.com/watch?v=yRz4G6Yc4fM