Why you insure at replacement cost not purchase price

So many people like to buy investment properties some even expand and develop a full portfolio.  One thing they have in common is not paying full price.  Now the investor buys this property to see two things occur; The property appreciate and the monthly cash flow it should bring.

So many times when you are not buying a traditional home insurance policy you have a little more flexibility with the replacement value of the home.  One key to remember is you need to rebuild a structure that you can rent for the same money you were receiving before it was damaged/destroyed.  You do not need to build the same exact home remember this is a money making venture.  Let’s rebuild a structure that can earn money.

About that monthly money, I always aim to have at least one year of rent covered by the insurance policy.  Make sure your policy has this built in, as long as your rent is in line with the fair market rents of the area this will work.

Just some ideas, use as you wish

Who are you buying from?

So when buying insurance you can buy from;

Direct; You call directly to the insurance company, just about every company has this option available.

Agent; Similar to buying direct you are calling directly to a company but speaking with an agent of the company.  Think State Farm, Allstate, Nationwide, Liberty Mutual, etc.  Definitely a step up and many times this produces a positive result.  On the plus side you SHOULD be getting a human being that  has a vested interest in your policies, happiness and rate.  On the negative, more times than not they only have one company available.  So if rates go up aw well, if you need an insurance they do not offer aw well.  There is also the inherent problem that you have an agent trying to earn a living.

Broker; So now you get a person however this person should have access to an almost unlimited number of companies.  Does this mean you always get the best rate NO.  What it does mean is that you have the opportunity to keep your rate more competitive for a longer period of time.  It also means that the broker does not have to try and force you into one company that may not be the right fit for your insurance needs.

And now for a new seldom seen person; The Consultant, I have not found many others operating this way.  I do not provide quotes, I provide reviews.  I’ll provide you with good sound advice even if it does not mean I end up earning money off of you.  The goal is to help you buy insurance not sell it to you.  Decisions are mostly philosophy based not dollar based yet you have a better chance of a consistent long term rate.

So who are you buying from?

So your rate went up, now what

Don’t panic, somewhere a rate has gone down we just need to find it.  So here are some steps;

  1. Call you current carrier and make sure everything is accurate.  Like it or not unchecked rates go up, let’s just make sure no mistakes occurred.
  2. So we know your policy is correct, now make sure you are getting all discounts you can
  3. Now we check on your annual mileage***typically 8000 or less per year gets a savings
  4. Have you done a driving or other applicable safety course your state allows?
  5. Now we look at coverage, since you may be shopping let’s at least make sure your coverage  is where it should be before you shop.  Don’t be fooled by an agent who cannot explain why you have a certain amount of coverage.
  6. So you’ve given your current company a chance now it is time to shop.  I would suggest a broker since they can do 5-10 quotes pretty quickly
  7. Now it is up to you, if you found a savings, how much is your loyalty worth?

So you want a lower rate…

  • Improve your credit score…huge factor can make a bad driving record irrelevant
  • get a college degree…it helps but not everyone
  • own a home/condo..helps a lot and gets a multi-policy savings
  • take a defensive driving course..boring but profitable
  • make a point to review ANNUALLY
  • Know the value of your car…Do you still need physical damage coverage?
  • Be loyal to a good agent not a company….nuff said
  • take higher coverage…you’ll look better when shopping

Insurance has been commoditized set your coverage plan than your rate!!!

Do you really need a billboard if you are so good?

So I was driving down a pretty well trafficked road that I use pretty regularly.  The difference is that yesterday I noticed two large billboards for Geico.  Now this is a company whose rates, service, website, etc. are supposedly excellent.

Now this is not to discount advertising or continuing to market to a new audience it is just to say that if you are really good you should also be worth sharing.  Your millions of customers, if they really liked you, should be willing to share you with their tens of millions of friends.  Granted this billboard goes hand in hand with the letter I also received yesterday from Geico, actually slightly interesting that in case I spoke Spanish they put the letter in English on one side and Spanish on the other.  Although I appreciate the efficient use of paper, a little bit of available research by your direct mail division could avid this silliness.  This letter was accompanied by one from State Farm that was just as silly, seriously if all you can talk about is discounts you really need to re-think your marketing.

Sort of obvious that advertising car insurance will not disappear, at least not in the near future.  It also will likely still treat the american public like a bunch of idiots who are only concerned with discounts and average savings.   Feel free to read an earlier post on why saving $500 is a bad thing.   Instead of advertising why don’t you focus on making your customers advocates for your company?  Make sure that every effort is made to provide consistent rates.  Stop charging more money year to year when the customer is already profitable.  Be proactive in your efforts to keep up with your customers rather than just waiting on them to call.  What if instead of boring, useless direct mail pieces you hired some people to call your customers and make them feel like you want them to stay…on second thought don’t take my advice.  It is much more fun to take business from you.

Are you overpaying or being overcharged?

My guess is you are likely overpaying.  What’s the difference?  Overpaying can be thought of as allowing your policy, regardless of type, to renew year after year after year without checking in with your agent or company.  In that case most companies gradually allow an unchecked policy to go up in rate and likely not keep up with the needs of the owner.

Overpaying can also happen if you, for whatever reason, are “loyal” to your company.  I am not sure I understand this it is sort of like the political debate of whether or not corporations are people.  Loyalty is earned, typically by other human beings not companies.  Now if humans at the company treat you well or have provided great experiences I get it.  On the other hand if your rates have gone up year to year and your policy has not improved I do not understand why you are so loyal.

When else?  It is nearly impossible to say you are “overinsured” however it is possible to have coverage you do not need.  It is also possible to maintain physical damage coverage on vehicles that you may not be concerned over the status of.

Overcharged can likely only happen if a mistake was made.  Of course mistakes happen although it is fairly rare.  Now if you check on your policy annually and have even a basic relationship with your agent you should be  able to avoid this scenario.

Are they both avoidable?  Well overpaying certainly is.  How do you avoid it?

  1. Hire a good if not great agent
  2. Review your plans once a year
  3. Reserve loyalty for people that earn it

Thanks for reading.