405: Special Guest Interview with Ryan Daubert—Insurance for Investments (Part 2)
Get the guidance you need now.
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, book a complimentary consultation.
Episode Transcript
Welcome to Episode Five of Season Four of the Growing Empires show. Today I'm back with my guest, Ryan Daubert, senior partner at Daubert, Shannon and Associates, and we're going to resume our conversation regarding protecting yourself with the proper insurance policies. So stay tuned.
00:20
Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:39
So what do you think is the most common misconception or mistake that investors make when obtaining policies? Sure, so we've seen really two main mistakes commonly, the first one is investors choosing to go with an actual cash value settlement, versus a replacement cost settlement. And what an actual cash value settlement is, say your home burns down in the fire, actual cash value settles that loss for the market value minus depreciation. So market value think of what you paid for the property and then they go out and depreciate it. So say you bought a property for $100,000. You know, God forbid you had a loss, you had an actual cash value policy for $100,000 dwelling limit, when the adjuster comes out, they say, well, you know, maybe the roof was 10 years old. So we're going to take off $10,000 for that, you have original plumbing so you know, we're going to knock off another $20,000 for that. And by the time they settle that claim, the number doesn't leave you enough to repair the damage. But it also doesn't leave you enough to go buy something else with the settlement money that's comparable. So back, maybe, you know, 10-15 years ago, it was actual cash value policies were significantly more affordable than replacement cost policies, as demand has kind of dried up for those products pricing is pretty much identical. In some cases, we even see replacement cost policies being less in premium than actual cash value policies, and replacement costs, how those policies settle, doesn't matter whatever the market value, what you paid for it, it settles for what it would cost to rebuild the policy. So a lot of times if you know, Center City row home, you know, you might buy for $70,000, that replacement cost is because it's solid brick construction, plaster walls might be $200,000. And when those settle, there's no calculation done for depreciation, they settle for strictly what it's going to cost to rebuild that home. I always like to say to you always want to obligate an insurance carrier to perform rather than giving them freedom. So when you're purchasing an actual cash value policy, you're essentially saying the adjuster, you know, you tell me what my home is worth and what depreciation and I'm happy with whatever you come back with, because you really don't have a foot to stand on at that point, where's replacement cost, they're obligated to rebuild that home for you. So you're obligating them to perform contractually. So there's a lot less ambiguity when you're going through the claims process. So that's always something that we recommend an advocate for is replacement costs.
03:10
The second major thing that we're starting to see less of but used to kind of be en vogue like 10-15 years ago, always linking policies on a master policy form. So if you were an investor with 10 rental properties, you would purchase one policy that listed 10 locations on it, under kind of the guides of that it was going to be easier to implement. So you have one policy number, and it was done basically to help administer the policies. So instead of having 10 different payments coming out, or sending 10 different checks at that time, you would just basically make one payment. Now carriers are a lot more advanced than they used to be. So it's not so much of an administration issue where, you know, if you have 10 auto drafts, or, and the client, basically, portals are a lot more advanced than they used to be. So when you log in, you can see all your policies online, administration is super easy. But that used to not be the case. So linking on a master policy, the issues you'd run into if you had a bad claims year, and so you had four claims on four separate properties, but they're all linked on one of those master policies, the carrier might come out and say, you know, what, we want to drop coverage, we don't want to write this anymore, we're not making money off of it. We need to cancel coverage. That point you get stuck shopping all 10 or, you know, 20-30 however many policies were on that one master policy, you know, all now with cancellations on the record. So it makes it very costly to now go and shop all your properties that have all been cancelled for poor claims history. The other thing too, is when they were on those master policies, you were aggregating all your liability onto one policy. So if you had a million dollar liability limit and you had a bad claim that was $900,000, now for the rest of the year, however many policies you had on that master product, you're basically sharing $100,000 across, you know, 10-20 locations. So it could essentially leave you almost uninsured for liability for the rest of the year. Now we're starting to see less and less of those as carriers are becoming more and more advanced and technology is, the insurance industry is kind of catching up with technology. We're not seeing as many master policies, but it certainly for clients that maybe haven't reviewed their coverage in the last 10-20 years, we still see those policies pop up. So that's definitely something that we try to, you know, make sure that we're reviewing with clients, so make sure see if that products still suitable, and kind of go over the pros and cons of having a master policy like that. Understood.
05:43
The episode will continue in just a moment.
05:47
To keep your real estate investments working hard at growing passive income, you need to have the right resources to help reduce risk and exposure to over taxation. Having the right attorney, tax advisor and insurance protection is critical to ensuring your investments are safeguarded and set up for success. Knowing tax laws and legal regulations, while securing experts who care and understand your goals will allow you to prosper. If you need help finding the right resources to mitigate risk and maximize your tax advantages, let's talk. I can help you know what to look for and how to scrutinize new or existing resources so that you have the right fit and get the best protection. Schedule a call with me today and I'll listen to your goals and make recommendations. To get even more information that will make you a smarter real estate investor, be sure to sign up for the Growing Empires Advisor Guide at GrowingEmpires.com. That's GrowingEmpires.com, and I'll help you get the right resources to protect your investments and your future.
06:41
So last question, what should you avoid doing as an investor to prevent like coverage denial — is there anything that an investor could do that would cause them to be denied any claim? So the main thing is, and probably the easiest way to kind of avoid that is making sure that you're talking with your agent, you fully understand what your insurance policy covers, and really understand the claim submission process. So kind of that pre knowledge really helps go a long way, when it comes to submitting that claim. If you have a better understanding of what the insurance policy covers, what it doesn't cover, anything that could not be covered. So depending on the carrier and the product, that can vary drastically. So that's certainly a conversation that you'd want to have with your agent prior to purchasing any product. Now, when it comes to the claim side, and something has happened, my best advice is always, always, always call your agent first before you call the insurance carrier. One thing is you don't want to get in the habit of submitting small dollar claims. So say you had $1,000 deductible and, you know, was windstorm came through and blew off one piece of siding, it's going to cost $1100 to replace, at that point with the $1,000 deductible, once that's paid, essentially receive a check for $100. And what that does is put a claim on your record for the next five years, which is going to increase your premium. Also, if you have a large portfolio, it's going to show up every time you shop a property potentially increasing price. So the one thing is work with your agent, make sure you're using them as a resource when you're going through the claims process. And number one, see if that makes sense to even call the insurance carrier. When you do call the insurance carrier, whether you go through with the claim or not they recorded as such, even if it's a $0 claim they don't pay out, that's still shows up on your record. So make sure you're using your agent as a resource. It's kind of the you know, first thing you want to kind of approach when you're when you're looking at submitting your claim. The second thing is making sure you're documenting everything. So if you have a repair person come out, you want to make sure you get that in writing what they found, you know what they estimate it's going to cost to repair you don't want to just want to call you know uncle Robbie and, and tell him to give you a you know what he thinks his opinion, you want to make sure you're using licensed contractors or a property management company to kind of go out and making sure they're documenting anything that happened to the property. And that pays dividends when you're going through the claims process because you have some written documentation of what happened to the property that the adjusters that the insurance carriers can come back and talk to. So some people get kind of misconceptions that insurance companies, you know, they don't like to pay out. And that's generally not the case. But what they do have to do is maintain very strict, basically requirements from going through the claims process and they have to really stick towards that policy language. So understanding the coverage first is it leads to the elimination of a lot of frustrations. And kind of what I'm talking about is if if there's something that happens that's not really listed on the policy, the insurance company can't get in the habit of paying out those claims. Because the next time that really unlisted, or uncovered essentially event happens, you know, there's precedent now set where the insurance company has to pay out. And that's a very slippery slope for insurance companies. So they have to make sure they really are strict towards that policy language. But generally, when going through the claims process, as long as you're documenting everything, you know, making sure your contractors are reachable, should the adjuster need any further information, it alleviates a lot of that headaches and kind of really, really speeds up the claim settlement process with the market.
10:32
Good information. I mean, insurance is a contract, right? I mean, it's like two parties. So everybody has an obligation. So I assume that's why when you went back to say, you know, you got to really understand what the policy language is, is because it's a contract and, you know, the insurance provider and the insurance carrier, right, both have an obligation there. Yeah, absolutely. And, and, you know, insurance is probably one of the most, if not the most regulated industry. So the state gets involved, the federal level, they're also involved in products, it's incredibly difficult to even start an insurance carrier, there is a ton of regulation and client protection laws, as it should be, to kind of regulate the industry. So they're all the insurance products are very strict. And again, as they should be, it's to protect the company and the client. So basically, the understanding of the insurance product, what it's for, and what it's not for goes a long way. And then kind of you know, kind of elaborating on that insurance really isn't the replacement for maintenance, you know, you want to make sure you're maintaining your properties as best you can. And when that incident happens, if you have a fire or wind damage, hail damage, you know, water damage, that's really what the insurance is for. So you want to make sure you're understanding certainly what you're purchasing, and you know, that's where your agent comes in, and make sure they're explaining coverage to you. You know, I always make sure that, you know, our clients, if they have any questions whatsoever, or, you know, kind of hypothetical scenarios, they bring them up. So we can kind of go over and, you know, make sure they have a good understanding of the products, at its core insurance is really designed to protect you from those catastrophic occurrences. That's why it was invented, to protect you from things, instance out of your control, that would make it difficult, if not impossible to recover from financially, you know, God forbid, if your home burns down, you didn't have insurance and you lost, you know, $400,000 house and everything you own, that's something that's very difficult to financially recover from. Whereas like, you know, if a piece of siding blows off in a windstorm, and, you know, it's, you know, maybe cause $1,000 worth of damage or $1100 worth of damage, you know, maybe that's not something you want to put through insurance, because ultimately what that's doing is just increasing your price. Although something like that would be covered, you know, there's definitely decisions that you can make as a client, when you're looking through your insurance and what it should and should not cover, you can kind of think about when you're when you're going through the purchasing process.
13:00
And how often should you like, revisit the policy to make sure because things change, right. So should you do it once a year? Should you do it less than that, more often than that? Yeah, so we always review our clients policies on an annual basis. So when they come up for renewal, we take a look at them, and see if we have a better cost option from one of our other carrier partners, but generally every year is when it makes if your agent isn't already doing that, you should probably review your products. Pricing changes all the time, when it changes, it's they're not homogeneous changes, too. Pricing might increase or decrease in Allentown, and, you know, do the opposite in Bethlehem. So it always makes sense to kind of stay on top of it, or make sure your agents staying on top of it for you, and reviewing your product. So even with auto insurance, you know, we see rates sometimes change three times a year with a single carrier, depending on profitability form. So it always makes sense to stay on top of it. Certainly if you haven't reviewed your products in the last five years, I mean, that should be something you consider doing immediately, because rates and coverages and policy forms have changed drastically over that time period. So that's definitely you know, five years is definitely like a hard number. If you haven't taken a look at it, you certainly want to consider it. But you know, on ongoing basis, if you're just kind of just reviewing every year making sure your agent is checking your other markets every year, you know, that's definitely a good idea as well. Fantastic. So is there anything that we didn't cover today that you think we would be remiss not to talk about? I think that's pretty much it. I think we've had a pretty in depth conversation on kind of like the one on one class essentially, of insurance and certain things that investors should look at that they might not otherwise be thinking of. So yeah, I think we covered it pretty well. Well, I really appreciate your time and all of your knowledge. There's certainly a reason why you have all of my personal policies as well as my business policies because I trust you explicitly. All of your information is in our show notes page so that any of our investors that want to contact you to discuss their policies will certainly be able to do that. But I again, I just can't thank you enough for all your knowledge and your time and you know, really beneficial to hear everything that you have to say. So thank you for that. Yeah. Thanks so much for having me on. I really appreciate the opportunity.
15:23
For more information about how Jennifer can help you plan, develop, and manage a strong real estate investment portfolio, visit GrowingEmpires.com.
Contact for Ryan Daubert:
Phone: 610-440-1524
Email: ryan@dsainsuranceagency.com