Investors Beware

Dear Property Investor:

I have encountered this situation so many times during my insurance career that I need to mention this in today’s post.  And, it seems that I can’t mention it often enough.  In spite of these warnings, this predicament occurs with frightening regularity.

Let’s say you buy an investment property.  It’s your first.  You call your insurance agent to get the new policy issued.  They tell you that you can buy property insurance for the investment, but that you can also “extend” the liability from your current home to the new rental property – basically making the liability on your Homeowner’s insurance cover both your own house and your rental property.

Sounds convenient and reasonable, right?

This was done quite a bit in the good old days of insurance.  In fact, many insurance companies allowed you to add SEVERAL rental properties to the liability portion of your Homeowner’s insurance.  Many times for NO CHARGE at all.

Of course, as lawsuits and landlord/tenant issues became more and more expensive and complicated, this practice started to go away.  To an extent.

While many insurance companies no longer allow “additional” properties to be listed on a Homeowner’s insurance policy at all, there are a few notable companies that still do this.

Here’s the problem.  Let’s say you follow the advice of your real estate attorney and buy the investment property in the name of an LLC that you have established for this purpose.  Excellent idea.  Let that LLC take on the liability risk for the new property, and let the LLC get the property insurance policy, as well.  All good.

But, if you have “extended” the liability portion of the insurance for this rental property from your Homeowner’s policy, remember that your Homeowner’s insurance is in YOUR NAME.  It isn’t in the LLC’s name, who happens to be the owner of your rental property.

You may have just unwittingly co-mingled your insurance.

Worse yet, if the Homeowner’s insurance company isn’t aware of the LLC’s existence (they may only know that you happen to have a rental property, and assume that it’s in your name), they could conceivably DENY any claim that comes from the rental property.

Why?  Because they only insure YOU, not the LLC.

And, if you have the good sense to tell your insurance company (in advance, of course) that you have an LLC for the ownership of the rental property, and ask that they please add this LLC as an “additional named insured”, then you have now officially co-mingled your insurance.

The purpose of setting up an LLC for property investment is to separate the ownership, the responsibility, and the LIABILITY of such an investment.  The more defined and separate the better.  Different ownership name, different bank accounts, different everything.

Including different insurance.

Advice:  Buy a separate insurance policy for the ENTIRE INVESTMENT.  Get a Dwelling Fire policy (sometimes called a “Landlord’s Policy” by some insurers) that covers both property AND liability for the rental.  Then, if there’s ever an incident with a tenant or a guest on that property, THAT insurance will take care of the loss, and there won’t be any evidence of another insurance policy out there.  You know, the one that happens to belong to you personally.

The buck (or bucks) stops out there.

Any time you have a co-mingling of your insurance, the buck may NOT stop there.  It may come right up to your house.  The house insurance, your personal assets, everything.  Any good liability attorney will then see that you have not established a definable division between your own property (and ownership thereof) and that of any investments.

Yes, it’s a little more expensive to do it this way.  You won’t get the antiquated discounts that were offered back in the day when lawsuits were fewer and farther between.

But, in the day of finding the deepest pocket, you don’t want that pocket to be the one that happens to be in your own pants.

Talk to your insurance agent about this situation.  And if you don’t have one, or don’t think your current agent understands this situation, find one who does.  There are a few of us out there.

And most of us spend a lot of our time undoing what has been done by other insurance companies.  It isn’t always easy, but – believe me – it’s worth the effort.

Build that wall.  And keep it intact.

 

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Realtors Wanted

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To all real estate professionals, loan officers, property investors, interested parties:

In the property insurance industry, we have a luxury that most of you don’t have:

Our customer contact cycle is much shorter than yours.

I personally visit with my customers at least once a year, more often if they are making changes or adjustments to their insurance policy.

Since I also sell and manage a book of auto insurance, my contact with these types of customers increases to several times per year.

Occasionally, this conversation involves a claim.  I am frequently consulted as to who I would recommend in the roofing industry, floor repair, plumbing, electrical, in these instances.  You can only imagine what my contact list looks like.

Sadly, what I find to be a very short list is with those I know and trust in the real estate industry.  You know, the ones who are really here to stay.  Who want to build a customer base of life-long devotees.

Just like I am doing now with my insurance business.

My wife and I bought a home when I moved here (to a North Texas suburb) in 1995.  I have not heard from the realtor that helped me with that purchase in almost ten years.

We sold this same home in 2011.  Of course, I used a different realtor for that transaction.

I have not heard from that person since then, either.

We have since reinvested the proceeds from the sale into a multi-family property, without the assistance of those two real estate professionals who likely still remember us, but haven’t kept in contact.

I often wonder how many realtors believe that their listings are one-shot opportunities at a sale and some profit – and then allow the customers to just drift away.

The same goes for loan officers.

Many of them talk about developing lifetime customers, those they hope would return at a later date for another property transaction, another loan, or even a referral of someone else doing the same thing.

In the insurance brokerage. we are actively pursuing this goal.  We have relationships with insurance companies who specialize in property insurance of all types, in all areas, and for a variety of purposes.

In other words, we are serious about providing the best available insurance markets for our customers, at the best time, in the best place, at the best price.

We intend to keep them happy, keep them informed, keep them referring others to our business.

Frankly, to simply keep them.

I am constantly on the lookout for others – particularly in the real estate, lending, and investment industry – who are doing the same.  To be able to refer a serious, committed, professional to one of my customers is a very important component of my business.

Enough said.

 

Dear Realtors

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Hello again, dear realtor.

It’s me, the insurance guy.

You know, the one that comes to your sales meetings – sometimes known as the vendor/sponsor.

Usually buys the doughnuts or the breakfast tacos.

Stands in the back, waits for the meeting to be over so I can visit with you a bit. Actually, there are several of us in your midst.

And not just insurance people.  The construction trades, title companies, home warranty services, all kinds of folks back here – waiting to meet you, talk to you, get to know you.

But some things about us might surprise you, now that I think of it.

For most of us who have been in our respective businesses more than five years or so, it should be an indicator to you that we have become more or less successful at what we do.

We have sold a fair amount of business.  Have collected and maintained a fair amount of good customers.  And, if we’ve been careful, have accumulated a fair amount of savings and capital for ourselves and our businesses.

And, if you have lived in this city for any length of time, are also well aware that real estate investment is something that is prudent, necessary, and an overall excellent idea for us to involve ourselves.

In other words, we should be your ideal customers.

Just think about it:  What if we could all gather together, some of us experienced vendors, and pool our resources to buy a real estate investment…with you?

Maybe a single-family dwelling, or a multi-family property, a commercial/retail structure.  What would you do if we approached YOU and asked for your recommendation on how we should pool our available resources?

Believe me, it’s something that we discuss all the time.  With our families, with our customers and colleagues, between ourselves as vendors.

Just not with you.

Not that we wouldn’t, mind you.  It just doesn’t often come up.  We find ourselves in friendly conversation, handing out a doughnut or two, exchanging a business card.  Promising to exchange a lead some time in the future.

That’s as far as it usually goes.

But, what if we were your ideal next customer?  How would that change the conversation, do you think?

I have had this conversation with several real estate professionals across my state, and with several vendors who are involved in this industry.  It’s really as close to you as we are, as available as the cell phone in your hand.

Next time the sales meeting crowds itself onto your calendar, give us another look.

Give us a call.

Engage us in a conversation.

You might be surprised.  Pleasantly so.

We might be your next best customer.

Right there under your nose.

(I continue to respond to requests to present this message to real estate and investor groups around my state, and would be happy to bring it to yours, as well.  Just look me up.  We can talk about possibilities in your area, too.  Just think:  This might be the best cold call you’ve ever made!)

Hail, Yes

Hail

I attended the Texas Department of Insurance “War on Hail” this week.

It was very well attended – about 500 insurance professionals of all types were there.  However, I looked at the attendee list, and only a few insurance agents or brokers participated.  That seems strange to me, since this is a rather important topic these days around North Texas.

Most of the featured speakers and presenters were weather experts, roofing contractors, or insurance personnel involved in claims, mitigation, or fraud investigation processes.  You can imagine the dialogue between these types, and what might have been included in the various speeches and PowerPoint displays.

To boil it down to the bullet points:  Hail damage is now the most expensive peril in Texas now, surpassing even the large hurricane “events” from a few years ago.  While it was very rare, before 2006, for Texas insurance companies to suffer total annual losses in excess of $1 billion for the entire state, now it is more like the average.

For example, the hailstorm that ripped through the Irving – Las Colinas – Coppell area last June rang up claims that exceeded $1.2 billion.

This for an event that barely lasted thirty minutes.

As the technological experts huddled together around the state and the country after these claims piled in, they have now emerged with data and actuarial tables that would boggle even the mathematical engineers among us.

Taking, for example, all of the hailstorm activities since 1990 in the state of Texas, and overlaying the affected areas as a 20-year composite, the insurance companies can now see which county will likely suffer more hail losses in the future.

And which cities within that county.

And which streets within that city.

And which houses within those streets.

Yes, it has become that detailed.  With GPS tables, latitude-longitude calculations taken out to the 1000th of degrees, combined with 20 years of history in the state for this kind of storm, the exacting pinpoint prowess has given the insurance companies a new view toward selecting which properties are acceptable for them to offer coverage.

And, it now will literally vary from house to house.

Hail - Roof Damage

And the future of the claims process with change, as well.

For example, let’s say a prospective homeowner decides to submit a claim for hail damage following an upcoming hail storm.  The insurance company will already know if you actually had a hailstorm in your area at the date and time specified.

Even on your street.

Furthermore, the claims adjustors are thoroughly trained in the art of detecting whether or not your roof damage is legitimate.

With no regulations in place for a roofer (in Texas, anyway) to open for business in (no licenses, no testing, no boards of review, no rules), the amount of fraud and deception in this industry is rampant.

The estimates of North Texas-based roofers is said to hover around 3000 now.

Stories of roofers climbing on unsuspecting customers’ roof areas to “inspect” for damage, hammer in hand.  And those hammers aren’t to initiate repairs, either.

A good adjustor can detect these faults immediately.  Differences between hail impact on a roof shingle, and that of any other “tool” is now a common area of study.

You see, insurance companies are now testing hail damages against all types of roofing materials in large laboratories around the country.  They know what real hail damage looks like now.

They create it every day in their laboratories.  With modified snow-cone machines, compactors, and even baseball pitching machines to hurl these man-made projectiles – of all diameters and variety of hardness – at roofing, siding, rain gutters, even doors and windows.

They are now doing the same for hurricanes, fires, windstorms, and other perils that might come your way in the future.  Sophisticated is putting it mildly when it comes to the data that is available to these folks.

And, considering that the insurance industry employs approximately 19% of Americans these days, you can imagine that the armies of techies and geeks so gainfully contracted will enthusiastically embrace the challenges that lie ahead.

Bear in mind that the insurance industry can well afford the expense for this research, as well.

I left the conference with a new respect for the industry.

For their research, their diligence, their attention to fastidious detail.

It almost made me proud to be a part of the insurance business.

However, I have new concerns to share with my customers now.  New details about better made roofing materials, more reputable roofing contractors, the selectivity that now must be included in new home shopping.  Especially the insurance aspect.

And the certainty of more damaging hail storms coming our way in the future.

I guess I am happy that only a few of my fellow agents decided to attend this conference.

It will once again separate those of us who are serious about our trade.

From those who are not.

And, since hail season is a good three our four months away from us, perhaps it is a good time for you to be prepared.

And to find an agent who is, also.

Hail - Golf Ball

 

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Clueless

Little did we know.

The photo, taken in college, was of the two of us.

Only months after this was snapped, dried and processed at a Fox Photo somewhere in Southern California, and then dutifully pasted into someone’s album…we ended up in the same industry.

Insurance.

One, into the life insurance industry.

The other (yours truly) into the halls of a leading Property & Casualty insurance company, thick into the wild-eyed profits and investment income schemes of the last century.

Little did we know.

Before we knew it, the silly shirts and low-slung jeans would be exchanged for business slacks, ties, and nice Florsheims.

The talk would cease of Loggins & Messina, late-night burritos, and girls.  Subjects would change to close ratios, loss ratios, expense ratios.

Ratio heads, we would become.

We would pass our first licensing exams not long from this time.

Write our first policies.  Enter our first agencies.  As producers, of course.

Then, especially in my case, suffer our first claims.

Our first losses.

Insurance and otherwise.

I would experience – only a few short years later – a distracted customer involved in a fatal car accident.  With a young pedestrian.

Watch casualty limits quickly exhausted, litigation wrangling into knots at the courthouse, the great suffering of the bereaved and the injured.

And then, a casualty of another kind:  Seeing my first agency break up, the principals unable to get along. 

Those principals being my uncle and father.

Ah, yes, grandpa was very upset.

So, scroll forward a few years.  OK, a few decades.

The photos emerge out of garage-packed boxes, scanned into iPads and digital cameras now.  Oh, so much easier these days.

Slipping quietly into a Facebook posting by an old mutual friend, while we were blissfully unaware.

Maybe a birthday, an anniversary, a milestone in our lives.

Geez, did I really look like that?

We all know the answer to those questions when confronted with these types of photos, don’t we?

Funny, looking back at those people there.  You compare what you knew then, with what you know now.

Can’t help but gasp a little, just thinking about that, right?

So much water under the bridge.

But, in retrospect, it is always helpful to know, isn’t it?

Where we all came from.

 

How Safe are Your Firearms from the Insurance Companies?

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In many states,  homeowner’s insurance forms have made a subtle but significant change recently.

Some that they would rather not tell you about.

Insurance forms – meaning, the coverage packages that insurance companies create to sell in each state, present said packages to the Insurance Commissioner of that state, and then go to market with the product.  With little or no fanfare.

Of course, the basic forms are still mostly the same as they have been in recent years.  If you buy “the package”, you get coverage for your dwelling (the house itself), other structures on the property , furniture and other contents, additional living expense, and personal liability.

However, many insurance companies have filed slight “adjustments” in these forms, and have quietly slipped them into your policy.

Meaning, they have now limited the amount of coverage they will offer for certain specified personal possessions.

For example:

  • Jewelry
  • Guns
  • Cash
  • Rugs
  • Perishables

Often, these little limitations are buried deep inside the policy fine print.  You won’t find it, of course, until it’s time to file for that burglary claim that occurred while you were out of the house last Friday night.

Ironically, many of your well-known insurance companies offer several types homeowner’s packages, and the amounts of coverages for these personal items vary – depending on the type of package you have bought.

See my previous post (Are You on the A Team?).

One little piece of advice I give to potential new customers who call, confessing that they are just “shopping around” for the best price on their Homeowner’s Insurance package:

Call your own insurance agency on the phone – don’t send an email (you’ll see why in a moment) – and ask to speak to your agent.

Ask him or her, “what is the limit for firearms coverage on my homeowner’s policy?

Obviously, don’t leave a message with the assistant, or send an email with this question.  That will just give the agent time to research with that particular insurance company, and get you the correct answer in due time.

If they don’t know the answer to this question on the spot, get another agent.  Now.

Why?  Well, here in Texas, it is important to many homeowners that we keep our firearms well protected, if you know what I mean.  I suppose that’s also true of our jewelry, our collectibles, or just about anything else.

And knowing which insurance companies offer the best protection for our own “home-based” protection and other important possessions is, well, critical.

Interesting to know – several well-known Homeowner’s insurance carriers in our state – who advertise aggressively on the local media – have a limit of $2500 on firearms coverage.

Or less.

Folks, that’s the price of a nice, new Remington Nighthawk Custom shotgun.

God forbid the customer actually owns more than one firearm like this.

Or, worse yet, collects them for whatever reason.

There are a few insurance carriers who offer less publicized programs – for obvious reasons – that feature no limit on firearms coverage.

Wouldn’t you be interested to know who these companies are?  I know I sure would – especially if I was shopping around for a knowledgeable insurance agent.

In fact, it might make a rather large difference on which carrier I selected for coverage on the rest of my personal belongings.

And, by golly, my agent had better know the differences, as well.

In conclusion, please note that firearms aren’t the only things for which insurance companies like to slip in little limitations – check your policy (or get that agent on the phone again) regarding Mold Remediation, Building Ordinance, Replacement Cost, to name a few.

And be prepared for some surprises, particularly if your agent actually has the answers to these questions.

Once upon a time, I actually considered calling this blog post “Guns and Butter”, for the following reason:

Some carriers also limit coverage for perishables during a fire, burglary, or other insured loss.

That’s right, the stuff in your refrigerator.

Eroding Skills

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Once upon a time, those folks over there were very good at this.

You can see the legacy of their fine and tedious handiwork pictured above.

Alas, that skill set has eroded, the quality of workmanship not up-to-par like it used to be.

The Industrial Revolution has it’s fallout – unfortunately, on American soil.

It seems that over the past 10 years, some 20+ million square feet of Chinese drywall has come to America.  Built into American homes.  Sitting right under our noses.  Literally.

It seems that a fair amount of this product contains additives that are just not suited to American home building.

The product can emit toxic fumes, particularly in humid climates – note the American South, for example.

The fumes are also corrosive, and can damage anything from air conditioning systems to wiring to plumbing, to electronic devices.

Or lungs.

Worse yet, most American Homeowner’s insurance policies EXCLUDE damage from this type of building product.

A recent Virginia court ruling upheld an insurance company’s position that, since this kind of drywall was a defective product, damage due to it’s use is not insurable.  Worse yet, corrosion, pollutants, and other unsavory materials – and the damage they cause to your house – also are not covered.

This is serious business.  There is a lot of this product out there, friends.  If you are concerned about whether your construction (note homes built since 2000) may contain this material, contact your builder or contractor immediately.

Note that this product emits an odor that has been described as sulphuric in nature.  If you detect smells like this around the perimeter or interior of your home, do yourself a favor – make a call or two.

Sometimes the role of an insurance broker is to mitigate damage before the fact – even if that requires some inconvenience on the part of the customer – at least early on.

It sure beats having a judge tell you that there’s no remedy for you from your insurance company.

Wouldn’t it be nice if all walls were still built like the one pictured above?

As the saying goes:  “They just don’t build them like they used to.”