Topic: Insurance for Investors/ New Products/ New Attitudes
Presenter: Mike Englund, Fournier Insurance Solutions, Tacoma WA
Location: Shoreline Conference Center
Welcome to THE ‘AL’ REPORT. My name’s AL — Here’s my report.
A record 33 attended including several new people!
* 4pm Mingling, and vital business networking
* 4:45pm Joe began with ‘Needs and Wants’ where each person around the table shares what they need or want. This way someone may be able to match a solution to their need/want. Items included a general contractor in Kent/south areas, architect, funding, a wholesale buyer in Everett, auction help, insurance info, CPA, more projects, wholesale leads, partners for off market houses.
When we got to ‘AL’, Joe suggested I explain the gong next to me on the table. In the words of Than Merrill, CEO and founder of FortuneBuilders, “…we believe in ‘celebrating all wins’…” So I got us a Celebrate All Wins! gong. Now we can each share a ‘WIN’, any WIN…and ring the gong to celebrate! One person shared nearing completion of the real estate license course. Many other ‘WINS’ were shared and the gong rang to each of them. Come share a WIN in your life or business and ring the gong!
* 5pm Presention: Mr. Mike Englund, 35 years in the insurance industry. (He must have started at age 5) Mike is Julie’s insurance broker.Ten Steps to Better Protecting Your Investment Property!
Mike began by saying that when Julie invited him to speak to our group, he envisioned about six people on a living room couch. What he found was a room FULL of investors…all potentially needing unoccupied homeowners coverage. He explained that most agencies have not done a good job meeting investors’ needs, for rehab and buy-and-hold scenarios. However, recent changes in the insurance industry make it possible for them to tailor coverage to what we need. The insurance industry tends to run from condos…because often the HOAs have not kept the building in good condition. And, contractors have caused some problems (themselves) due to long term water damage issues related to poor workmanship.
The big question is… are you covered ENOUGH? His job is to assume there would be a loss, and provide coverage appropriately.
Concepts for today. Mike presented ten points that he discussed.
1) Valuation –
He recommends issuing a policy based on what was there, that is…replacement value, not what you may wish to be there, or had planned for, like in a renovation project. The loan at the very least must be covered. Valuation basis is the replacement cost (requires rebuild/repair to collect) and the actual cash (depreciated) value. You can do as you please with the settlement money. The question is: What are your plans for the property in the event of a loss (and how do you want the insurance policy to respond)? You should also have a discussion with the agent about whether a “builder’s risk” form vs. a “dwelling fire” form is most appropriate. Your answer will depend on the extent of renovation Cosmetic, carpet/paint = dwelling fire policy. Strip to studs = builder’s risk policy.
2) Coinsurance Penalty Clause –
This is often built into the policy; these have been imposed by insurance companies. If you didn’t insure to the full replacement cost, the claim settlement is reduced by the percentage amount that you are underinsured.
Example: You insured a $100K replacement cost dwelling for only $80K, (you're 20% underinsured--according to the insurance company valuation). You sustain a $40K loss on that property. Your settlement check is $32K (20% coinsurance penalty) rather than the full $40K. (Ignoring the deductible for simplicity.)
It is vital to insure to the replacement value. Replacement = After Repair Value (ARV) minus the land.
3) Perils Insured Against – Named Perils vs. Special Form.
The Special Form has ‘everything’, except what’s specifically excluded (e.g. gradual wear/tear, earthquake, flood). The Basic Form (named peril) has 10 things but no water damage, no theft coverage. There are separate riders for appliance and staged items theft, a common problem. Generally speaking, buy Special Form coverage, if you can get it!
4) Obscurity – such as building ordinances, loss of rents.
Separate coverage is available for energy codes, building ordinances, loss of rents, changes in codes.
5) Vacancy Clause –
These are especially important for flips. These clauses state there is NO coverage for loss from vandalism, water, theft in a vacant property. Be sure to suspend these clauses in policies. Ask about them before signing.
6) Liability – Licensed/Insured Contractors.
Always do business with licensed and insured contractors. That way, if there is a claim by a contractor or sub on your project, the contractor or sub covers it. This helps to keep your record clean. Have the needed written agreements with your contractors in advance of commencing work. (See the Six Critical Documents from FortuneBuilders.)
7) Deductible Considerations –
Higher deductibles, and paying small losses out of pocket saves the owner money over time. A habit of losses will end up costing more. Let’s say the appliances were stolen. A $2500 deductible in this case will save premium costs in the long run and keep company loss records clean. In other words, plan to pay for ‘minor’ losses out of the business funds to avoid making claims that are not huge.
8) Minimum Earned Premium provisions –
This says that the insurance company keeps the premium for the period of time indicated, even if you no longer need the coverage. Watch out for this trap–most commonly the company imposes 25% (3 month) minimum earned premium. Some companies even impose a “fully earned” premium rule, meaning they keep 100% of a one year policy even if you finish the project in less time, like 6 months. Not all companies practice this; be aware of the provision before accepting coverage!
9) Package/Portfolio Nirvana –
Individual policies are preferable to ‘one size fits all’ packages. Blanket agreed value. No ‘minimum earned’ provisions. Multiple projects/properties on one policy can result in lower insurance cost per property. Have similar properties conglomerated. These likely will only be available with multiple projects in a given year. Coverage is superior, premium is lower. Purchase if you can!
10) Companies to know —
Mutual of Enumclaw, Lloyds of London, Foremost, American Modern (10 home portfolios), Berkshire Hathaway, CIG (Capital Insurance Group)
Mike Englund, Fournier Insurance Solutions
- Your Seattle Investing Group is growing! These meetings began a year ago by local FortuneBuilders Mastery students, AND we happily include other like-minded folks interested in learning/doing what we do. These are not sales meetings and nobody tries to get you to join anything…except maybe their buyers list. (Put me on yours!) We share, learn, team up, buy, sell, lend, etc. Invite others and come join us!
- Meetings are the first Saturday of the month, 4pm to 6pm, unless otherwise announced. Watch for Joe’s emails. Other news is posted on our exclusive Seattle Investors Club Facebook page. Email us for an invite.
- Do you have ideas for a meeting format or topic? Please contact Julie or Joe. Perhaps you know an expert to invite. Perhaps you ARE an expert! We welcome your suggestions.
- Dan Wick wants everyone to know that he has a contracting business and needs to keep his guys busy. I bet Koa and Owen would say the same thing.
- Many thanks to the organizers, Coach Joe Bauer and Mastery student, Julie Clark, for their diligence.
And thanks to everyone. We look forward to knowing and working with you!
Disclaimer: Though every effort is made to report accurately, the inadvertent error may occur. Feel free to let me know if you see any goofs. Thank you. AF [email protected]