Battling the Insurance Company
March 29th, 2006 by Grant in: Insurance, Real Estate
When I did my first real estate deal, I had the house insured through the same insurance provider I have for my primary residence. Boy did that turn out to be a mistake.
USAA writes insurance policies for rental property based on replacement cost. If the house burns to the ground, what does it cost to rebuild the exact same house, using the exact same materials and techniques as when it was originally built? It’s a lot.
What would a stone foundation cost today? How about plaster walls and hardwood floors throughout? It’s a number about 4 times what I bought it for, and I was paying a premium that reflects that number.
Then I got smart and called around. All State beat USAA by a landslide, primarily because they write the policy based on what the house is worth, not the replacement cost. So I’m saving about $500 per year by going through All State, thus adding $41 per month to my cash flow.
I made the switch back in January, but since the insurance payments were held in escrow, and since the first lender sold the mortgage at the same time I made the switch, I’m still sorting out the paperwork.
In this case the escrow stipulation required by the original lender is very inconvenient. If I want to make an insurance policy change, I have to deal with my lender and the escrow account manager. I’d rather just pay the premium out of my own pocket, and be done with it.
What are some of your battle stories?
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December 29th, 2006 at 9:30 pm
Thanks. I’ll check out All State. I checked a few companies out and all seem to give the same quotes…except for USAA who wanted to charge me 3 times what the 3-family house is worth. Replacement cost be damned.
December 30th, 2006 at 12:16 pm
Exactly! USAA was quoting me a premium based on the cost to build the exact same house today. I’m not sure who would build a home with a stone foundation and plaster walls, but that’s what USAA was assuming I’d do if the place burned to the ground today.
As the saying goes, it pays to shop around!
-Grant