Rising Insurance Costs, What Landlords Can Do

In today’s episode, we are tackling a challenge that just about every landlord is feeling right now: rising insurance costs.

We’re sharing real stories about our own rental properties, breaking down why insurance rates are climbing, and giving you practical tips on how to protect your investments without paying more than you have to.

You'll hear why it’s so important to review your policy details, especially after upgrades, and how small changes might help you save money over time.

We’re also talking about the pros and cons of switching to lower-cost insurance companies like Progressive or Lemonade, plus giving you our honest take on insurance pooling and whether it’s worth the risk.

If you want to stay ahead of rising costs, protect your properties, and make smart insurance choices, this episode is packed with information you can use right now.

Resources & Links Mentioned in This Episode:

🔗 NEW! FREE Insurance Review Checklist
🔗 Listen about Vacancy Insurance: Part 1: The Nuts and Bolts of Residential Rental Property Insurance (EP20)

🔗 Listen: Creating Standard Operating Procedures For Your Business (EP6)

🔗 YoLink Water Detection Alarm System: Without WIFI or  With WIFI HUB 

🔗 Clean Dryer Lint Signs  AND Only Flush Toilet Paper Signs

🔗Listen: The Importance of Rental Property Inspections (EP4)

🔗 Listen: Renters Insurance: Why Landlords Should Require It (EP67)

🔗 Listen: Spring Maintenance Checklist for Rental Properties (EP3)

🔗 Liste

Connect with Us:

🌎 Visit our website

📧 Subscribe to our newsletter.

👆Click HERE for our FREE Landlord Forms and Doc’s

🤳Text Us: 650-489-4447. We love questions and love letters!

📩Email us at: Stacie@YourLandlordResource.com, Kevin@YourLandlordResource.com

✔️Course Waitlist: From Marketing to Move In, Place Your Ideal Tenant

📱 Follow us on Instagram, Facebook, & join our private Facebook group

🎧 Listen & Subscribe on Apple Podcasts, Spotify, or your favorite podcast app

Transcript

Stacie: 0:00

Let me jump in here and tell you that the LA fires, the Palisades and the Alta Dena fires that happened in January of this year. We are hearing nightmare stories of how people were underinsured. That they held the same policy for years and never updated their information with their broker. They just kept renewing and paying for their invoice as the premium came in. Then when they thought they were covered for upgrades or bringing the property up to code or for contents that they had no receipts or photos of like large TVs and computers or antiques, none of that was covered. The amount of coverage for them to live somewhere else while they rebuild was also an issue. And I get it, it's just stuff. But when you have to deal with the loss of a home or a rental property in this case, and then you find out that the income that you depended on is not part of coverage, and now you're stuck with receiving pennies on the dollar for what the value of that property will cost to replace. We are begging you to all take a really good look at your insurance coverage and make sure you're satisfied.

1:11

Welcome to Your Landlord Resource podcast. Many moons ago when I started as a landlord, I was as green as it gets. I may have had my real estate license, but I lack confidence and the hands-on experience needed when it came to dealing with tenants, leases, maintenance, and bookkeeping after many failed attempts. Fast forward to today, Kevin and I have doubled our doors and created an organized. Professionally operated rental property business. Want to go from overwhelm to confident if you're an ambitious landlord or maybe one in the making. Join us as we provide strategies and teach actionable steps to help you reach your goals and the lifestyle you desire. All well building is streamlined and profitable rental property business. This is your landlord resource podcast.

Stacie: 2:00

Hey there, landlords. Thank you for tuning into the Your Landlord Resource Podcast. I'm your host, Stacie Casella and I'm here with my co-host, also known as my husband, Kevin Kilroy.

Kevin: 2:12

Hi landlords. So when we're off the podcast and say, you know, with a group of friends do you introduce me as Kevin, your husband, also known as your podcast host?

Stacie: 2:25

Uh, no. Why would I do that?

Kevin: 2:27

Uh, just curious.

Stacie: 2:29

Well, now I'm gonna introduce you as my weirdo husband. Is that better?

Kevin: 2:34

Hey, I could admit I'm weird.

Stacie: 2:36

Yeah. Well, that's something we both can agree on. All right, we're moving on now.

Kevin: 2:39

Yep.

Stacie: 2:41

So as many of you have experienced firsthand, insurance costs for rental properties have gone up considerably in the past year or two. We've experienced losing insurance coverage on a single family home rental after filing a claim and have known many others in the same boat. We also have lost insurance coverage for our sixplex and had some stress having to find coverage from another carrier. And our insurance rates on our fourplex in Idaho nearly doubled this year.

Kevin: 3:10

Yeah. Not only did that expense double, but we've also had to lower rent significantly to get those vacant units rented too, right?

Stacie: 3:19

Exactly. So you guys don't just assume that it's always wine and roses over here in our world of managing rental properties. We're always having to shift or adjust to make things work and remain profitable.

Kevin: 3:33

Well, profit will not be a word we'll be throwing around the Idaho properties this year, that's for sure. And listen when we are wrong, we will admit it. Now, our rep for the property management company we use on that fourplex up in Idaho did tell us that the money we were putting into the units would not reflect a higher rent for that property. And where the one unit where we made most of our renovations rented fairly quickly, we had hoped to be able to get a higher rent that we ended up with. Now the other unit, a two bed, two bath, that had been vacant for some time, just could not secure a tenant. You see this fourplex is located within a group of 20 or 25 other fourplexes, all on one large plot of land. So when we have a vacancy, we are competing with all the other vacant units on this land, which are managed by the same property management company. If we wanna ask significantly more for a unit, most people are gonna select the lower cost ones if the only difference is the flooring, countertops, and appliances that are upgraded. Which puts us in a place of lowering the rent to match other units that aren't as nice as ours or waiting it out. We have advised other property owners before that lowering your rent$50 a month or losing$600 a year in rent is much better than waiting it out and losing thousands of dollars of lost rent from not running out a unit at all for months on end. But what did we end up doing? Waiting it out and losing thousands in rent.

Stacie: 5:15

Yeah. Well, part of that is because each time that we considered lowering the rent, an application would come in and we'd hold off to see what happened, and then it would fall through and we would have to pull from the reserves to cover that monthly expense. Then we have the conversation again about lowering the rent and another application would come through. And we would wait, and before we knew it, a couple of months had gone by. And let's just say that this unit, you know, we only put an additional$500 worth of improvements into it. And that's above and beyond the normal expenses that we incur for turning a unit after vacancy. You know, for such things like painting or carpet cleaning, or having to do repairs like this one had damage done on both the bathtubs and needed to be resurfaced because a previous tenant had an ESA whose claws had scratched the crap out of it. But we're striving for higher rents because we are hoping to sell this place and we're working to have a strong rent role to present to potential buyers. So we do have a method to our madness, it just doesn't pencil out when you see it on the spreadsheet. Anyway, if you have the reserves and a specific goal in mind, then wait it out. Otherwise, take the rent the market calls for and move on.

Kevin: 6:34

And quick update, and this is kind of funny. As we were doing this podcast, we just got a message from our rep that that two bed, two bath had rented. What's even funnier? Literally minutes before we got that text, Stacie and I were talking about, well, do you think we wanna lower it another 50 bucks a month? And luckily we delayed a little bit because we got our original asking price. So there's a small win for us.

Stacie: 7:03

Yeah, always, always nice to have a good win. But, the whole reason we got on the subject of our rents was because our insurance costs for that building nearly doubled and our income has decreased, which is not a fun scenario to be dealing with. However, we do have reserves to cover these adjustments, and thank goodness, because otherwise we would have to pull from our personal funds, and that is not enjoyable at all. So the long and short of it, rising insurance costs for landlords is something many of us are having to deal with. And today we want to share what you can try and do about that.

Kevin: 7:43

Right. So let's start with discussing why insurance rates are skyrocketing so much now. There was an article that EZ Landlord put out a few months ago that mentioned that the average cost of insurance has gone up 25 to 45% in just the past four years. There are a few different reasons for these increases. First, natural disasters. Wildfires, especially here on the West Coast, have been devastating to homeowners, as have floods and hurricanes in the south and on the east coast. Now, think of the lost homes that have insurance where those policies have to pay out for them to repair or completely rebuild. This results in a labor and material cost increase, which is simple supply and demand. The increased demand for those homeowners that need contractors and building supplies decreases the supply of workers and materials available, which raises costs, and those costs will likely never come back down. The insurance companies who have to pay these increased costs have to increase our cost, those who have not failed any claims, just to cover these other claims.

Stacie: 8:56

Yeah, we experienced that lack of supply of contractors or sales when we had that flood in Chico. We've mentioned it a few times, but we had a water supply line to a toilet break when our single family home rental was vacant. It flooded one third of the home and luckily, besides wiping out the bathroom completely, the rest of the damage was mostly just flooring. But we, for the life of us, could not get a contractor to the house to even give us a bid to get those repairs done. Why? Do you remember the devastating Camp Fire that happened in 2018? There was over$16 billion. That's billion with a B in damage. Not to even discuss the insurance portion of that, but there was something like 19,000 structures destroyed. And this is a small county in Northern California, so there's not unlimited contractors there. By the time our little flood happened in 2020, every single contractor and trades person had more work than they could handle rebuilding those destroyed homes from the wildfire. Our job wasn't even worth it for them to even come and bid on. For the record, our own contractor from Chico lost his home and was trying to rebuild it as well as many others. He didn't even have someone to refer us to. But we did luck out and our Sacramento contractor, Jim was able to go up there and work on it, you know, a week here, a week there, just to get it completed.

Kevin: 10:20

Yeah, I mean, we were really fortunate he was willing and able to come up and do that for us.

Stacie: 10:25

I know, right? But what do others in our position who don't have a Jim to lean on do? I mean, they wait it out and they pay more for the work to be completed. A lot more! And speaking of our water supply line break, increased property damage claims have skyrocketed, which is another reason insurance costs are rising. Part of those damages are solely due to deferred maintenance. It's also because, well, they don't make things like they used to. A vast number of supplies are made with plastic now, not metal or brass as they used to be. Which is what happened with the water supply line to our toilet. It failed because over time the plastic valve could not sustain the water pressure. They also fail because the lines are not braided metal, but PVC that has metal braided through it. Water heaters fail much quicker than they used to, and a small undetected leak can be disastrous to a home. Especially if that water heater is in the upstairs unit of like an up down duplex. In the old school way of installing a water heater, it didn't include having a water pan with a drain pipe to allow leaking water to flow out of the unit to the outside or underneath the home. And there are now safeguards in place for those things. However, many homeowners and landlords with water heaters that were installed over 20 years ago, prior to the implementation of these codes in most areas, they will not have these protections available when their water heater fails. So what happens? They will file a claim with their insurance company to get the flooring repaired and replaced, not only for the upstairs unit, but also the unit below where the water has created damage. Vandalism is also a very real issue that insurance companies are facing now. We have had people break into our vacant units and destroy'em. We have family members where their homes were broken into and turned upside down. And sideline here, we did an episode on rental property insurance, where we discussed vacancy insurance a while back. You can give it a listen at yourlandlordresource.com episode 20, or we'll link it in the show notes for you. But long and short of it is if your unit is going to be vacant for longer than 30 days and you or someone else will not be visiting it a few times a week to check on it, you might consider getting what is called vacancy insurance. Which many of you may not realize if your home or rental property is vacant for longer than 30 days, many of the clauses in your insurance policy may not be covered because there is not someone living there to reduce the chance of complete devastation should a fire or a flood happen. So getting back to the old way of building homes. Wiring in old homes without grounding wires, cannot handle the amount of electronics being run through them today and fires can happen. Now, are you all gonna go and pay for someone to come in and rewire your home? Not likely, but that means that precautions must be taken. And we're gonna talk a little bit about more about that later.

Kevin: 13:35

Yeah, the bottom line is that it all comes down to risk assessments. Insurance companies are exiting and no longer writing policies in high risk markets. Which is why our insurance on our a hundred year old building was canceled. The insurance company felt that because the building was so old that it held a higher risk of devastating damages that would result in a claim they did not wanna have to pay on.

Stacie: 14:01

Yeah, and the stinker part of that is that the shell of the building was built in 1923, but it had been completely gutted and rewired, re-plumbed, and had all the HVAC installed in 2005. So for the most part, that building is more up to code than others around us that were built in the seventies and eighties. And they would not even entertain the idea of letting us show or prove to them that it was updated. We kind of panicked and scrambled when we got that notice, but because we work with a broker, they had another company that we were able to get insured through.

Kevin: 14:37

Yeah, that was not a fun couple of weeks. So the last thing I wanna touch on to explain why insurance costs are rising is because insurance companies have to pay reinsurance costs. This is where insurance companies pay to insure themselves so if they get a huge number of claims that they cannot pay out on, they can file a claim to help get those covered. And those costs for the reinsurance are going up for the insurance companies to pay. When their costs go up, it trickles down to us at the bottom, the policy holders.

Stacie: 15:13

Yep. And we're all paying more, even if our properties haven't had claims, because we're all part of that national risk pool. And quick side note, property insurance companies are not the only ones who have that reinsurance. Medical insurance companies hold that as well. And I know because when my late husband was ill he had an 18 hour long surgery when he needed a heart and double lung transplant. When it was all said and done, he had ended up spending 13 months in the hospital and rehab centers. And his bill, and I almost died when it came in, was over a million dollars. Because we had top tier insurance, we had to pay wait for it,$750. Now, don't get me wrong, we paid very high premiums for years because we knew that at some point he was gonna be very ill. But when I saw that$1 million invoice, I almost passed out. However, after having a very close friend of ours who's in the insurance industry, look it over and make some phone calls, we only had to pay for that hospital copay, which was$250 a day for the first three days. He also told us that Health Net, that was our insurance company at the time, had this reinsurance and would be filing a claim to help them get their portion of our claim paid. Had I not had that insurance, I would've had to pay or work something out with the hospital. So I know that we don't like to pay for insurance, but when you need to lean on it, it really does reduce your stress. Now I want to move into discussing what you as a landlord or even a homeowner can do about these increases in insurance costs. First and foremost, you want to check your policy for accuracy. We have experienced it ourselves where one of the mountain homes was thought to still have the same wood shake roof on it. When in actuality the roof had been redone years before to a metal material, which was much more fire safe. When the insurance policy was reviewed and updated, there was a significant decrease in the annual premium. So you want to contact your insurance company and update them whenever you get or do the following things. If you do a new roof, new water heaters, add an alarm system, get wildfire clearance certifications, do tree trimming and property maintenance. Because for one of our mountain homes we have to have the local fire department come around each spring and notify us of what bushes or shrubs need to be cleared or what trees need to be cut back. When we do the work, they will often come back and inspect it again and issue a wildfire clearance certificate for us to provide to our insurance company. You guys, that certificate alone cut$1,000 off our premium. So we cannot stress this enough, each year get together with your insurance carrier or your broker, and do an annual insurance checkup for each of your properties.

Kevin: 18:19

Yeah, I mean, that should be part of your standard operating procedures for your business. We did an episode all about creating standard operating procedures for your rental property business, and I believe it's in our top five of most listened to. You can give it a listen by going to your landlord resource.com/episode 6, or click the link in our show notes. I mean, that was a good one where we broke down all the things that you should be focused on and why. Our next bit of advice for lowering your insurance premium is to shop around. When it comes time for your renewal get out there and get quotes from three or four insurers. I mean, many carriers now can bundle property and liability insurance, which can save on the bottom line too. But always use caution when you change carriers. Sometimes you are covered by one because you have been loyal and held your policy for a long time, like 10 years or more. So when you change companies, you lose that loyalty and run the risk of being dropped by the new carrier should a disaster strike in your area. So yes, compare pricing, but use caution before jumping ship just to save a few bucks. Always discuss the cost with your broker to see if they can find any area that can be changed to bring your cost down before you just cancel a good policy and move on to a new carrier.

Stacie: 19:47

Yeah, that's very good advice. You know, my parents' friends had that happen to them. Now their policy was super expensive, like$11,000 a year for their second home in the mountains. So they changed carriers and where initially they paid a little less, after a year or two, their policy rate jumped to over$20,000 a year. I mean, that's just outrageous. When they tried to go back to their old carrier they found that they were no longer writing new policies in that area anymore. So yeah, use caution before you move to a new carrier to save money.'cause sometimes in the long run it doesn't pay off.

Kevin: 20:26

Okay. It's time to discuss what property upgrades you can do that might reduce your premiums. So let's start with smart leak detectors. There is one that gets really high ratings from a company called Yolink. The issue is that most all of these detectors, whether it be from Yolink or Honeywell or Moen, require wifi or an internet connection. I mean, which is fine for our sixplex because we just had fiber optic installed there recently. And side note here, we will be doing an episode on that experience and all that we learned from that next. But most rental property owners do not provide or have internet connected to their property for their personal use. Now, you can ask the tenant if you can use theirs, but to be honest, we would not feel comfortable doing that. There are some that just sound an alarm, which is great if the tenant is home, but if not, and you select one that is not operated as a smart device you will not receive a text or email notification letting you know that there is a leak occurring in your rental. But for your personal home, we recommend these all day long.

Stacie: 21:38

Yeah. Can you imagine back in 2020 when the Chico home flooded if those were available?

Kevin: 21:44

Oh, right. I mean, that water would've run maybe three hours and not three days. Those water detectors are fairly inexpensive, I think it's like$60 for four sensors. And they just sit on the ground behind the toilet or under the sink or near your water heater. We will link them in the show notes so you can check'em out. We especially like them for our personal home and the cabins because we can receive a text when there's water detection and be able to handle it right away rather than discovering it later. Like if we're on vacation, we can contact our neighbor to turn off the water to the house. There are other sensors that connect the lines, but these Yolink ones are pretty much plug and play. Fire extinguishers are a must for rental properties. I think the general code is one large extinguisher per 3000 feet and one on each level. Now, I know in Idaho we have one outside the doors on each level. In Sacramento, we have one within 25 feet of each entrance, so I think there's four extinguishers there. And we also provide a small one under the kitchen sink, and here's why. Most home fire extinguishers will put out fires for chemicals, electrical, paper, but not grease. And most kitchen fires are caused by grease. So we keep a small kitchen extinguisher in each unit just in case. Now, for our son's duplex, we bought him a couple extinguishers as congratulations because the building did not provide them prior.

Stacie: 23:23

Yeah, they didn't provide smoke detectors in the bedrooms either, which is law. Now smoke detectors and fire extinguishers have to be provided by code, so they're not necessarily an upgrade. But if you have a fire in your rental property and you have not provided smoke detectors to alarm your tenants so that they can call 9 1 1 or fire extinguishers so that they can use it to reduce or lessen the chance of the destruction, there is a chance that your insurance company may not cover all of the loss. Same goes with smoke detectors. Now this is hearsay and we don't know where we heard it, but we were told that if the smoke detectors were not checked on at least annually, and there is a fire where the smoke detector is not functioning properly, and you as a rental property owner cannot prove you had checked that smoke detector in the past year, you may carry some of the liability and your insurance carrier can limit the coverage of the loss. Because apparently some insurance companies have this written within their policy. So as we tell you over and over and over again, get into your units at least once a year and do inspections. We do them twice a year to check for leaks, lease violations, check the smoke detectors, and we change the batteries, get the fire extinguishers serviced and refilled, and change out the air filters to keep our HVAC running well. If you remember earlier we discussed wiring of the home and how on older homes the wiring may not include a ground wire. And where it may not be possible for you to have the rental rewire to be safe, you do need to make sure your tenants are using the precautions as well. Often at our inspections we will see plugs with extension cords or those surge protectors with multiple electronics all plugged into them. We'll see a bunch of kitchen counter appliances like air fryers and toaster ovens and blenders all plugged into outlets. And having those many things plugged into outlets, especially if it's an older home, can be a fire hazard and need to be addressed. And likely your tenants don't even realize that this is an issue and need to be advised. Now we did do an episode on inspections early on. You can listen to it at yourlandlordresource.com episode 4, or click the link in our show notes. These inspections usually coincide with our fall and spring maintenance days so that we don't have to bother the tenants multiple times a year. And we have episodes on what we do for each of those seasonal inspections as well, so we'll link those in the show notes too.

Kevin: 26:05

Yeah, I mean, water and fire are gonna be the most common claims filed. For those of you in hurricane country, I imagine hurricane windows are upgrades to consider. If you're in a high crime area, surveillance systems can also knock a little off your premium rates as well.

Stacie: 26:24

And of course fire sprinklers can help lower the cost of your premium too. If you have them in your rental property, even if only in the garage, make sure your insurance carrier knows that. There is many things you can do that will lower your premium. But before you go and spend a ton of money, check with your broker or agent'cause they can tell you if the savings is worth the expense. Conversely, they can tell you what provisions are written on the policy that could disqualify payment on a claim. We have a friend whose home was severely damaged from the recent floods that occurred from Hurricane Helene when it hit North Carolina. And our friends were not in a flood zone. They were actually in a hundred year flood plain, which means floods only happen every hundred years, so flood insurance was not mandatory to hold. Their home was damaged by water, but the insurance company would not cover any claims that they had, and I think they got a few thousand dollars from FEMA. Now these are older folks, so I imagine that their income may be limited, and many of us sent money and tried to help however we could, but they were what, one of a thousand homes that experienced this problem. For those homes that did have flood insurance, the insurance companies will have to pay those claims. And sideline here, I understand that insurance companies are now offering wildfire coverage. I have no idea how this differs from regular fire insurance, but I imagine in areas where residences fall in the wildfire red zone, maybe it would be more challenging to get insurance to cover fire. I mean, what do we again, Kev?

Kevin: 28:01

Well, I think the latest fire hazard maps from Cal Fire shows us in a high risk location. Now the state uses these maps to guide where stricter fire resistant buildings and landscaping rules apply. But according to the California Department of Insurance, the maps are not expected to change how insurance companies weigh fire risk and make policy decisions because insurance companies are already using their own risk analysis tools and models that go beyond Cal Fire's proposed maps in determining what properties they will underwrite. Again, no idea if or how these recently released maps from Cal Fire will affect our insurance rates or coverage.

Stacie: 28:45

Yeah, because I know that way back when, my parents got dropped from their insurance company on one of the mountain homes. And the only thing they could get was a state issued policy that covered just fire and not liability. Then they had to find another insurance carrier for liability, which was a hassle. And thankfully Farmers opened that area back up and now they're covered for both under one policy again.

Kevin: 29:09

Yeah, well as you help them with all that, now I imagine you not having to track two policies on just one of their properties is helpful. I know we pay a small fortune each year to have earthquake coverage, and even if our home is destroyed by an earthquake, I think our deductible is like, what, 80 or$90,000?

Stacie: 29:30

I think it's over a hundred thousand now. But we're covered. You guys, we live less than a quarter mile from a major fault line, and our home does fall in a wildfire zone. Not the worst zone, but a zone nonetheless.

Kevin: 29:45

Which means the insurance company can likely charge us more and will at some point. Okay, so we touched on upgrades you can do to lower your premium. Now there is one more thing you can do to see a direct reduction in your premium, and that is to increase your deductible. We always try to go for as high a deductible as we can. It lowers the premium and it also puts us in a place where it is cheaper to do just the repairs ourselves instead of filing a claim against our insurance. So the flood that we had in the Chico property that when all was said and done cost us$25,000. The insurance covered$17,000 of that. And that was a result of us not checking in with our carrier about the level of coverage we had. First we did add vacancy insurance onto the policy, so we were covered on that end. We did not have full coverage for something like this. We only had replacement costs. So any improvements we made, like we added a larger vanity, installed a glass door across the opening to the shower, which was not there before. Those were not covered. We got a percentage of the value of the small vanity that was in there before, which was like$200. The new vanity to fit in there costs us$1,200. And after the demo had been done, we found there was some dry rot. Obviously from before, so the labor and materials for that was not included in the claim. And there were other items as well, I can't name all of them off right now. But yes, the insurance adjuster was very nitpicky. I mean, those carriers are not gonna pay out a penny more than they're obligated to.

Stacie: 31:34

Yeah. It's a business though, so I get it. If I wanted more, I should have paid closer attention to the policy and how it was written.

Kevin: 31:42

I guess, I mean, it's just that most people assume that when they have insurance and something goes wrong, the insurance company will do their part.

Stacie: 31:51

Yeah. Well, if you think about it, it's similar to the way we operate our rental properties, right? Someone applies to live in our unit, just like someone applies for an insurance policy. We agree to let someone live in our unit as long as they sign the legally binding contract that we have in place. Pay the fee for our rent and abide by the rules. When our expenses go up for whatever reason, we are then usually going to somehow pass that increased expense onto the tenant, either by way of increasing their rent or adding fees on that normally we would not. And a good example of this would be paying the water bill. Our water for the sixplex has only one meter, and we pay that plus sewer and trash charges monthly for the tenant. When those prices go up, but our income stays the same, that lowers our profit and our ability to pay ourselves. So we're gonna implement the RUBS program that equally divides the water and trash bill based on occupancy and unit size, and the tenants will start to pay their portion of those expenses. Same goes with the insurance agencies. You just need to think about it in terms of risk. The higher the risk a home or an area is, the higher the premium will cost the consumer. We all sign a contract on the dotted line agreeing to the coverage that we receive based on the costs that we wanna pay. And the more we pay, the more coverage we get. Tenants sign a lease agreeing to pay rent, and the bigger the home or the nicer the neighborhood, the more rent they pay. They agree to care for the property and if there is continual issues by way of lease violations or an increase in risk, we can choose to not renew their lease and move on. And that's what the insurance companies are doing now. They're moving on to properties in areas where there's less risk.

Kevin: 33:48

Okay. I mean, not exactly apples to apples, but I see your point. And the bottom line is that at the end of the day we are all operating businesses that include risks. We try to reduce our risk by paying for insurance, and sometimes because that premium is expensive, we will agree to less or not full coverage so that the lowered expense will allow us a better profit. And so I guess by choosing a policy that does not provide full coverage, we are taking a risk as well.

Stacie: 34:20

Yeah, pretty much. But I think now we're just confusing everyone. But we'll cover more on the differences of coverage in a minute. First, let's talk about preventative maintenance by way of tenant education.

Kevin: 34:32

Alright, sounds good. Obviously you want to be actively involved in preventative maintenance with tree trimming and cleaning gutters. And our advice on guidance on those would be in those spring and fall maintenance episodes. We will link those in the show notes. Now, when we say tenant education, this is you informing your tenants with all they need to know about how to handle an emergency situation when they arise. Because the more they know, the less risk you have, which means the fewer insurance claims you'll need to file. We do this in a couple ways. First and foremost, we have a solid lease. You want that lease to cover anything and everything that could go wrong with your rental. If the tenant's kid flushes a toy down the toilet and it backs up the whole system, you need to make sure there is verbiage in your lease that makes it clear the financial responsibility to remedy that is on the tenant. Same with checking smoke detectors. Our lease, say they have to check them monthly. I mean, do they? No way. We don't check ours at home that often. But if a battery happens to go out while they're away on vacation and they have no idea, then a fire breaks out and they try to say it's the landlord's fault because the batteries were not updated. Because we have that clause stated, the responsibility falls to the tenant. But to be honest, we change batteries every six months, whether they need them or not. At the same time we change the air filter they are supposed to change and usually don't. Your lease and the addendums are your only way to enforce these issues before they happen. We also provide at move in, a unit binder that has all these things that are specific to that unit or building in that binder. It has the location of the water and gas meters and instructions for how to turn them off. It also has instructions on how to turn the water off at the valve under the sinks and toilets.

Stacie: 36:42

Yeah. You guys don't ever assume that people know how to do this because very few renters do until they learn it.

Kevin: 36:49

We have checklists of what they have to take care of in the unit on a monthly basis, like checking the smoke detectors. The bottom line is that we do everything we can to set those tenants up for success. We made a video on how to clear a jammed garbage disposal because we were getting a lot of calls on them. We also have notes on use and care for the disposal so that it won't rust out. And you know, since we have done that, our calls regarding maintenance requests for garbage disposals have pretty much just disappeared. So walk through your units and make sure that tenants know all the little quirks and things that make that unit work best. Think about the water, the sewer, the heater or boiler, what they need to know about how to handle scenarios during different seasons, like if you get weather down to freezing temperatures. Now, Sacramento has several heat waves each summer and fall, so we tell tenants how to work the air conditioner when it's 110 degrees outside. You need to assume that whoever is moving in has no idea how to live alone. We had a single guy who called and said the dryer doesn't work and it keeps coming up with an error message. Now mind you, he has the actual user's manual in his unit binder and a QR code link to get the manual up on his phone. Yet he still called. I asked for the error code it was reading out on the digital panel, and in 30 seconds I had pulled it up on Google. And you know what it was? This lovely tenant had never cleaned the lint trap on the dryer, and it was shutting itself down because it was starving for air. I mean, this was a 30 plus year old man, you guys. And no, he did not just move out of his parents' house. I mean, my guess is he never had an in-unit washer and dryer and went down to the laundromat where he just collected his clothes from the dryer and left. And he had been living in this unit for months already and never emptied the lint trap. Not once. Which is why we now use these really nice yet inexpensive little acrylic plaques on all of our dryers that read, Please Clean Lint Trap After Each Load. It's Highly Flammable. We picked up a two pack on Amazon for like eight or nine bucks. We'll link those in the show notes. I will say we have never really had an issue with backed up plumbing, knock on wood. But this same company makes a couple signs about only flushing toilet paper down the toilet, and we picked up a couple of those for the midterm rental. We can link those in case you guys want to check'em out too. So when we say educate your tenants, we mean have a step-by-step how to guide for your unit so that they can learn how to work things properly and what to do in case of an emergency.

Stacie: 39:52

And for those times where they don't follow the steps and something devastating happens like a kitchen fire or a bathtub that overflows and floods another unit below. You wanna make sure your tenants have renter's insurance. And yes, renter's insurance will help keep your own policy in place because the renter's insurance will pay for repairs that happen due to your tenant's negligence. If you don't require renter's insurance, you will have to file a claim on your insurance policy, which will likely cause an increase in the cost of your premium or cancellation of it. Now we did an episode on renter's insurance and why we require it. You can give it a listen at yourlandlordresource.com. Episode 67, or click the link in our show notes. All right, we have a couple more items that we wanna touch on here, which are mostly about the different levels of insurance companies out there and if they're a good fit for rental properties. So low cost insurance companies like Progressive, Obie, Steadily, Travelers, and Lemonade, you know, are they too good to be true? Not, if you don't mind doing all the work to make sure that you have the proper coverage. Compared to the bigger insurance companies in the landlord space, like Farmers and State Farm, Allstate, or Geico, where you often find a broker or an agent in your town to go in and work with one-on-one, the smaller brands are online and electronic when it comes to getting quotes, asking questions, and filing claims. And because they don't have brokers to speak to at your fingertips, they don't have to pay commissions, and they pass those savings onto you. Where you get streamlined coverage, it also means less human interaction when you have a question or concern about your coverage. But does lower costs mean that they have the same coverage? Not necessarily. It's our understanding that many of those online insurance companies may have more exclusions and a lower base coverage than the bigger ones. So when you're researching them, here's our advice. You know, learn what you want from your insurance company. That means know what you're willing to pay for a deductible. Do you want loss of income coverage in case the claim forces a tenant to move out? Are you okay processing everything online or do you wanna speak to someone when you have a claim? Do you want ordinance or building code upgrade coverage? Do you have, or will you ever be converting to short term rentals? Because some companies do not offer coverage for stays that are shorter than 30 days, and you can void your policy if you offer this without them knowing. You guys, those questions are just the tip of the iceberg, which is why for us, and I will emphasize that for us, we like to use a larger company that offers us a broker that we can speak to. In our case, we have been dealing with the same broker family business for over 30 years. You know, we started out with them as with Farmers for our rental properties, and when Farmers dropped us, because the properties were over a hundred years old, these guys, these brokers had other insurance companies that they also repped, and they got us all set up with a smaller company called Honeycomb. Now, they're not in every state, but their pricing was about$50 less a month than Farmers. And we got the same exact coverage that we had. And we get to keep the same brokers to deal with when we have renewals or questions.

Kevin: 43:33

And maybe we pay them a little more than we would another company to get the same coverage, but for us, having our personal and business insurance all with one broker or agent, makes life simpler and worth the potential additional cost. Our son, kid two, who lives in Idaho, refuses to pay those higher rates. He found a broker back there that works with and prices out all those other smaller companies like Progressive and Lemonade. He was able to save our son about$750 by going with Progressive and bundling his personal, home, and auto. So there are ways to save and get similar coverage. You have to do the work to find the right company, or in this case, he was referred to this broker by his mortgage broker. The one thing that we have heard about mistakes that people make with insurance policies, and this can be for your personal, home, or rental, is not understanding replacement costs. And this is why when you renew your policy each year you need to speak with someone or update your online profile of your property whenever you've made improvements. They need to know when you put on a new roof, replace water heaters, add security cameras, a new fence, or remodel a kitchen or bath, because your policy is based on the replacement value of what you had originally set up. And depending on how you set up your policy, the replacement value could be full, which means you get reimbursed for all new materials and finishes. Like if you just bought all new appliances and a devastating fire destroyed them all, you would have to prove those appliances were in there to get full reimbursement. If you still have old appliances in there, they will pay you an amount to replace those older ones. And that's with full coverage. If you do partial coverage, you can end up where the insurance company will put a life on each item you are claiming and deduct the amount of life spent on that item to give you a partial replacement value. So let's use a roof as an example. Let's say you have a roof that is guaranteed for 30 years. If you have partial replacement coverage, you have a roof that is 10 years old, the insurance company will give you back the remaining value of that roof or what it would cost to replace the 20 years of life left on that damaged roof. Basically taking the cost of a roof replacement for the exact same roof, not upgraded materials, and dividing the amount by 30 years, and only giving you the amount for the remaining value by deducting the 10 years of life off that payment. Now think of that for each and every part of the rental property, the kitchen cabinets, appliances, garage doors, regular doors, bathroom vanities, I mean the list goes on. Many of these online companies will offer this level of coverage, and unless you read that declaration booklet cover to cover, you may not even realize it. And this is a problem because when you first start out, you are like, Hey, I'll take a chance and just save some money on one of my largest expenses. And you know, that's okay. But as your rental property appreciates and the cost to replace it fully goes way up, you need to really consider if you wanna take that chance.

Stacie: 47:10

Let me jump in here and tell you that the LA fires, the Palisades and the Alta Dena fires that happened in January of this year. We are hearing nightmare stories of how people were underinsured. That they held the same policy for years and never updated their information with their broker. They just kept renewing and paying for their invoice as the premium came in. Then when they thought they were covered for upgrades or bringing the property up to code or for contents that they had no receipts or photos of like large TVs and computers or antiques, none of that was covered. The amount of coverage for them to live somewhere else while they rebuild was also an issue. And I get it, it's just stuff. But when you have to deal with the loss of a home or a rental property in this case, and then you find out that the income that you depended on is not part of coverage, and now you're stuck with receiving pennies on the dollar for what the value of that property will cost to replace. We are begging you to all take a really good look at your insurance coverage and make sure you're satisfied. So yeah, our tip for you all is to not only compare premium amounts when you call or go online for a quote, compare apples to apples. Take the declaration pages and go line by line and compare what you're getting. When you have all those details in front of you, you can make an informed decision on what's best for you.

Kevin: 48:39

You guys, owning rental property takes a lot of responsibility. It's not just offering up a home and receiving money for it. You are running a business and need to take the time and effort to do so properly and in an organized manner. So if you use a smartphone, set up a reminder or put on your calendar like 45 to 60 days before your insurance company renewal to review it fully. Okay, the last thing we wanna touch on real quick, because we have been approached on it, and at some point you might too, is insurance pooling. This is a shared risk model, like a private insurance co-op, if you will. Now, the one who approached us has a minimum all in property value of$200 million. Now, of course, this is way beyond what likely us and all of our listeners even own, but it's not if you're a part of a REIT that owns a bunch of those huge apartment buildings all over the US. The long and short of it is landlords pool their properties together and create their own private insurance company. And the benefits are that there are potential cost savings and refunds on policy premiums after low claim years. You also have more control over your policy. The downside is it is a high upfront investment and for years where the claims are high, you could be assessed to make up the cost of those claims. Also, there was no regulatory protection. Again, these are common with large corporations who own millions worth of property or REITs. And for those of you who may not know, REITs are Real Estate Investment Trusts where you invest your money into a large property along with many others, and own, say, a 200 unit apartment building collectively. We have not done this yet, but it is a good way to get into the real estate and investment space without actually having to deal with the property itself. If you get into a good one, the payouts can be really nice. But back to insurance pooling, REITs commonly use this practice for insurance coverage.

Stacie: 50:53

Yeah, so insurance pooling is a very interesting idea, but for us, and most landlords like us, I think we're way more comfortable with traditional insurance companies. All right, so some key takeaways and action steps from this episode. Don't auto renew. You want to review your policy every year. Communicate property updates with your insurance company or your broker. Consider smart upgrades and higher deductibles. Look beyond the premiums and evaluate your coverage details. Educate your tenants about how to handle certain situations with your property. And also require renter's insurance. And finally be skeptical, but curious about alternative models like pooling. Now we have one more thing for our listeners. You remember how earlier we recommended that landlords should have standard operating procedures for the rental property business? Because insurance can be overwhelming, we created an insurance review checklist for you guys. It's a simple two-page checklist that you can keep in your management binder for each property. And it has six sections that cover policy basics. So is the address correct? And do you have the right coverage for the kind of rental property that you own? Do you have liability coverage, stuff like that. Property updates that you need to report. So have you put on a new roof or replaced any HVAC? Cost savings adjustments, like have you taken advantage of bundling or gotten three comparison quotes on your policy? Coverage questions. So that's like perils, which are covered and which are not. Tenant related protections, like have you shown them where the shutoff valves are? And has every tenant given you proof of renter's insurance coverage? And finally, annual renewal prep, which is setting up a meeting with your broker and adding a reminder to your calendar for next year's insurance review. You guys, this is your standard operating procedure to use each year for your insurance review. And now you can download this for free at yourlandlordresource.com/insurancechecklist. That's yourlandlordresource.com/insurancechecklist. And we're also gonna put a link in the show note so you can download that PDF there if you'd rather. And that is our show for today. A little housekeeping stuff before we end. If you like what you hear on this podcast, would you do us a favor and subscribe or follow on your favorite podcast platform? That way our episodes will be waiting for you each week so you can enjoy all that we have to say about owning and self-managing rental properties. And we would be super appreciative if you would leave us a kind review. Those reviews really help other landlords like you know that we're the real deal. We have links to the review sites in the show notes. If you have a question or you wanna suggest a subject for a podcast, you can text us at 6 5 0 4 8 9 4 4 4 7, or you can email us at stacie@yourlandlordresource.com. That's Stacie with an IE or kevin@yourlandlordresource.com. Feel free to download any of the forms or templates that we offer, or if you wanna sign up for our free newsletter, you can access all of our links in the show notes. And if you'd like to follow along on the Daily, you can find us on Instagram and Facebook, and we also have a private Facebook group. Again, links to everything are in our show notes. Thanks again for taking the time out of your day to listen to our podcasts. And until next time, you've got this landlords.