Monday, April 30, 2018

Untangling a Messy Insurance Situation!

Look before you Leap!
When I was a little girl, my parents always expected me to run into trouble because I often rushed too much!

I would occasionally run into a corner of a wall or hit my shoulder on a doorway, just because of running and not looking ahead.

At school, I'd replace a minus sign with a plus mid way through solving a math problem or substitute a 3 for an 8...

Small mistakes lead to wrong answers and, in childhood, to a lot of bruises.

Well, some things are just a part of our nature. I have to admit that I'm still experiencing similar types of issues and hitting obstacles just because of going too fast and not looking ahead.

Found Really Cool Insurance Company

A few months ago, when interviewing market leaders on various topics as part of my book research, I discovered a very neat insurance company.

They specialize in home insurance and use technology to let average consumers choose exactly the coverage they need for their homes.

This process gives you an experience similar to how the rich would do it - a consultant walks with the rich through their home, pointing out fur coats and expensive vases and painting, and asking whether those should be insured and at what value.

This company repeats the same experience for every client using super friendly online application process.

For example, if you own a bike and live downtown Toronto, you can add bike insurance coverage. On a flip side, you can skip everything that doesn't apply to you and save some money. So, if you don't need jewelry or fur coat coverage, you won't be adding it to your plan.

Evaluating Risk can be Tricky! 

Another very neat aspect is that selections by default include all the necessary coverage. So you can't make a costly mistake accidentally.

For instance, even though earthquakes rarely happen around here in GTA, you shouldn't remove earthquake coverage to save a couple of bucks on your premium.

When dealing with insurance, always imagine what you'd like your coverage to be in case a certain disaster happens. Would you think saving two bucks a month was a great idea, when your home got shattered by an earthquake that no one even expected?

No! You'd want some money to get yourself a new place or fix those cracks in the foundation.

I learned during the interviews, that insurance providers already figured out adequate cost based on the likelihood of a certain event. They wouldn't charge consumers millions of dollars for earthquake protection in GTA. However, they do have a lot of data to validate the scenario and, if there is a slight chance that an earth quake is possible and can cause considerable damage, they'd offer the coverage.

So what I really liked about this new insurance company is that they wouldn't let you waive coverage of the type, where a typical consumer wouldn't have sufficient data to make a wise decision. They wouldn't let you take on a risk of losing everything just because your assumptions are based on day-to-day life and not backed up by lots of data with detailed analysis of trends and probabilities.

Instead they'd let you make very safe decisions such as increasing your deductible to save money on your premium or removing coverage that will not cause you to be out on the street in case of a disaster. For example, removing bike insurance and increasing deductible from 1K to 5K would be a great way to save money without putting yourself at risk of becoming homeless at the same time.

Saving $1,200 = A Week on Vacation

Now, at last but not at least, this new insurance coverage ends up being cheaper than what I currently have.

All the small savings from choosing the specific optional coverage I need and waiving safely components that I don't need, add up. Also, even though I have several properties, this company doesn't charge me extra.

Each of my properties still qualifies as a regular residential rental home and there are no extra charges for being a commercial client with more than 3 rentals. Traditional insurance providers would usually charge you extra, once you have more than three rentals.

I got quotes for the first three of my rental properties with a total saving of $400 a year. This might not sounds like much to you, but here is my math.

Saving across all of my properties would be around $1,200 a year.

$1,200 roughly equals to half a year of profits on one of my rental home. This is because my typical goal is to make $200/month on every unit. By tweaking my spending on insurance, I gain half a year worth of profits.

Let's see how the saving compares to what people usually make on a paycheck at a job. Let's assume 30% tax and 80K/year salary.

$1,200 equals to  $1,714 paycheck earned at work before tax. This is about 5 business days worth of work. Basically a week!!!

No matter how you look at this. The saving of $1,200 sounds HUGE in my mind and I wouldn't want to miss it.

Going Too Fast

Better Safe Than Sorry!
Obviously, I got very excited about this opportunity to streamline my insurance expenses and rushed forward.

I got three quotes for three properties and successfully transferred two of them to the new insurance provider: my primary residence and one of the rentals.

It was a very smooth and easy process and only took a couple of minutes and clicks at the computer.

Unfortunately, there was a snag with the third property!

What I didn't realize was that the company only insures a very specific type of residential properties.

There is an underwriting process that takes place after you get a quote and before you get coverage confirmation.

Oops!!! Left With no Coverage!

My third property didn't meet the underwriting requirements and coverage was rejected.

This happened because this property is not a typical residence. It is a triplex and is on cultural heritage list.

Unfotunately, I rushed forward and had cancelled the coverage with the existing provider BEFORE I received a note from the new vendor that they would not cover this property.

I did so because:
  • I saw the two other properties transfer very smoothly. 
  • I loved the quote for the third property as well. 
  • It was the last day to cancel renewal with the current provider without any fees. 
  • I tend to rush!

To make matters worse, when I started looking for another new vender, it turned out that most insurance companies would not even quote you on rental properties insurance unless you also cover your primary residence with them.

So, now with only a few days left, before my coverage expires I have to find insurance coverage at reasonable cost and move two of the properties from the new vendor elsewhere.

The good news is that the new company that I describe above doesn't have the requirement of covering primary residence. So I can still take advantage of their pricing for most of my properties. In addition, their cancellation fee and process is easy.

Now, fingers crossed! Let's see how my search plays out.

Have any comments or questions? Please comment below the post or get in touch directly. I'd be happy to hear from you.

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