310 – Keep Your Asset Covered

In this episode, I’m going to tell you a true story about a situation that happened to me recently regarding one of my properties.

We have owned this one since 2014 and currently operate all the apartments as short-term rentals.  In 2016 when we made the switch from long-term to short-term tenancy I met with my insurance agent at the time to be sure I had adequate coverage for the change of use.

I figured that the property would be subjected to a bit more use and abuse due to the short-term nature of our tenant’s stays.

My agent suggested that I simply purchase an additional liability policy that would cover any claims of damage or liability that stemmed from the short-term occupancy.  The cost of the plan was only $1200 a year which was well within my budget since the property consistently cashflows 10x that or more each month.

In 2020, my insurance agent sold his practice to another agent and retired.  I did not find this out until 6 months after the sale which irked me a bit I must admit.

After chasing down the new agent for well over two months, I finally received a call back where he explained he has been “busy” with the takeover of the agency.

I ask that my policy be reviewed to be sure it still provided adequate coverage for my short-term rental which he acknowledged that it did.  

This fall, while speaking with one of the agents in the office on an unrelated issue the conversation came up about policy renewal.  I asked if it was still necessary to have three separate policies due to the Airbnb situation which she replied that my wind policy would not offer any coverage in the event of wind damage from a hurricane or likewise if I was using the units as short term rentals.

You can imagine my feeling when I discovered that all along I have been underinsured!

If I had suffered a loss at any time over the last 7 years due to a storm or wind damage I would have zero coverage available to me.  Let’s not even get into the wasted money of paying for the wrong policy, EVEN after being proactive about full and unsolicited disclosure about exactly how I operate that property.

The agent determined that I had to switch to a commercial insurance policy because of the AIRBNB element.  This increased my annual insurance costs by over $6,000 per year.  

As you might imagine I wasn’t real pleased about receiving this news but at the same time, I am thankful the issue was discovered and hopefully corrected.

I must say, after this debacle, I am very insecure about whether or not I have the proper coverage.  I certainly don’t want to pay for coverage I don’t need, nor do I want to risk being under-insured.

Clearly, I need to have another licensed insurance agent take a look at this situation which has proven to be a challenge all by itself.  It seems no insurance agent in Florida needs more customers.  They don’t answer the phone, respond to email or website inquiries.  Even those who referred to me simply will not respond.

After about trying over two dozen companies I finally got one to call me back only to learn that they would not consider quoting the policy without me proving my roof was under ten years old.  I was dumbfounded to hear this because the effective age of a pitched shingle roof in Florida is 20-25 years, yet now the insurance companies have decided that they no longer like that timeframe.

Fortunately, the roof was on schedule to be replaced this year anyway so needless to say we expedited that process and are now awaiting the materials to arrive for the roofer to begin the project.  Once that’s done the roofer will provide me a 4 point inspection form and proof the job was completed that I can turn over to my current and future insurance companies.

In the end, it’s the cost of doing business.  I could choose to get all upset about it, sell off my portfolio and trade crypto in my Mom’s basement, yet that would be foolish.

When I consider the $100,000’s of thousands of dollars of legally tax-free income I have earned from this investment property over the years, the costs I mention in this episode become small and insignificant.  

In summary, how you choose to interpret things that happen will make you or break you.  Those that crack under pressure are generally the same people whose property I wind up buying at a bargain price because they simply chose to fail.  Instead, choose to succeed, find a solution because I assure you there is a solution for each and every problem you face.