Insuring That Investment

Most investors are concerned that they don’t underinsure their properties. Especially in areas that have been hit by hard times, the cost of insuring a building can be more than the cost of just selling it. There is also the possibility that you’re working the situation the other way as well and over insuring the property. There’s a delicate balance here that you need to carefully work with to allow for the maximum profit. The question becomes why spend the money at all if you don’t have to?

There are two ways that you can over insure. The first comes about through the insurance companies that automatically increase your property damage coverage each year. There are various benchmarks that companies use including the average construction costs each year and most of these are fed into a computer program. Insurers say that the automatic coverage increases that apply to apartments as well, are for your protection, but the increases can be more than unrealistic. In the end, you can wind up paying for losses that you would never incur even if the building burned to the ground. There are a few things that you can do if you feel that the costs for your coverage are too high.

One of these is talk to your agent. A real estate agent may be able to advise you on replacement costs. As well, you might be able to speak with a builder or have the property appraised. There is another common reason that you may pay too much for your property insurance.

The second source of this over insurance is the fact that lenders often insist that the house or property be insured for the value of the mortgage. It happens often, that the mortgage may actually far exceed the replacement value of the building. Here's an example. If you own a house worth $50,000 and the house needs work, you could quite possibly get the same amount by selling the property as if the house burned to the ground. But there is a bright side here: many lenders will allow you to reduce the amount of the coverage if you can provide a letter detailing this discrepancy.

Although the savings by presenting this kind of letter may not seem like a lot, it is possible that even an amount like $75 will generate the ability to support another property. Consider the fact that a savings of $75 a year supports a mortgage payment of $625 worth of debt.

The point is this. While insurance is an important and fundamental part of owning or investing in a property, all consumers must be careful to ensure that they are getting the proper value for their money.

Olympian Civil Home and Building Inspections (866) 476-2056