What is the Right Deductible for Your Properties?
DO THIS!
Before you buy a policy from an insurance agent, ask to see copies of the forms that you would have to fill out to file a claim. Then ask the agent to explain the timetable that you would have to follow in order to get paid.
How does that process feel to you? Try to see ahead and im-agine what it would be like to go through the claims process.
If you had to pay out $10,000 to pay for a new roof in the aftermath of a hurricane and wait six months to be reimbursed from insurance, what kind of damage would that do to you in other areas of your real estate activity?
Try to see ahead to possible problems and to buy the insurance that can protect you from the “worst case scenarios” that can sometimes do great harm to real estate investors.
When you make an insurance claim, the deductibleis the amount of money that you must pay out-of-pocket before your insurance covers the remainder.
How large a deductible should you agree upon? Making this decision is essentially a balancing act in which you weigh your financial resources against the amount of risk you are willing to assume. The higher the deductible you can live with, the lower your insurance premium will be. You need to consider how much cash you will have available to pay out that higher deductible if you should ever have to do so.
Because each property owner’s situation is different (different cash on hand, different rental income, different taxes to pay and so on), weigh all these factors and make the decision that is best for you.
This is a topic to discuss with your insurance company, your attorney and your accountant.
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