My Insurance Agent Cost Me My Property!

My Insurance Agent Cost Me My Property!
07/10/2012
Important real estate property insurance terms and coverages not to be OVERLOOKED!

Examine your real estate property insurance policy for the 4 important terms and coverages listed below! These terms and coverages are commonly EXCLUDED or insufficiently applied to most real estate property insurance policies. This could lead to a devastating out of pocket expense, financial termoil within your company and could ultimately RISK you losing your investment! 






1. Real Estate Property Flood Insurance

Did you know that flood coverage is excluded in almost all insurance policies?  Did you also know that flood is the most common natural disaster in the U.S.? 

Floods often result from torrential rainstorms and hurricanes. Floods also commonly result from snow melt and as a side effect of development, such as road construction or a new housing community- that alter storm water drainage patterns.
 
Who is at Risk?

Flood insurance is not just for people living or working on the coast. According to the National Flood Insurance Program (NFIP), 31% of the properties damaged by floods are located outside of a special flood hazard area as designated by FEMA. The NFIP reports that floods happen in all 50 states and that floods are the second most common cause of property damage behind fire.

Property owners are often mislead into believing that flood insurance is only available for properties that are located in a special flood hazard area or “flood zone.” Unfortunately, this myth has caused many property owners to suffer from uninsured flood losses that could have been easily covered. The only requirement is that the property is located in a “participating community.” This could be a township, municipality, city or county that has agreed to participate in the NFIP.

2. Does your current policy contain a Coinsurance Clause?

Coinsurance is an arrangement by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total value of the property insured.  If you have a coinsurance clause on your policy, the following conditions will apply.

**The carrier will NOT pay the full amount of any loss if the value of the property at the time of the loss multiplied by the coinsurance percentage shown in the declarations is greater than the limit of insurance for the property.  In other words, you must be insured to at least 80%, 90%, or 100% (whatever the coinsurance percentage is on your policy) for the carrier to payout the full value of the loss.  If you have an 80% coinsurance clause, this is the minimum property value you can use: 
                RC Value (NOT MARKET VALUE) of property:     $200,000
                Coinsurance percentage listed in the declarations:       80%       
                Minimum property value that should be listed:            $160,000

**When a property falls below these guidelines, the carrier will use the following steps to determine the maximum payout.
1)       Multiply the value of the covered property at the time of the loss by the coinsurance percentage.
2)       Divide the limit of insurance of the property by the figure determined in step 1.
3)       Multiply the total amount of loss, before the application of any deductible, by the figured determined in step 2.
4)       Subtract the deductible from the figure in step 3.

The total that is determined in step 4 is the most the carrier will payout.  The key item in these steps is the replacement cost value of the property at the time of loss compared to the property value listed in the declarations.  The one that is calculating the property at the time of the loss is the insurance carrier.  The one that is calculating the limit in the declarations is your agent.  It is always different, and more times than not the carrier is always higher.  So, if the carrier comes back saying your property is valued significantly higher than your agent had it rated at, then you have no choice but to pay a coinsurance penalty.  Well, that is not true, you can hire an independent adjuster to fight the insurance company, but then you will be paying the adjuster any amounts he/she is likely to gain on your behalf. 

Here is an example of a client of ours that had an 80% coinsurance clause on his policy before he came to us.  After you see the numbers, you will understand why he went shopping for a new insurance company. He had a $45,000 loss at a single family rental home in which he had a total limit of insurance of $60,000 and a $5,000 deductible.  The insurance company ran the value of the property at $117,000 at the time of the loss.  Then the insurance company ran their formula and calculated that his settlement would be $22,900.  That means he was out of pocket for $22,100.  

Our only advice is to eliminate coinsurance altogether on your policy.  You can never guess how the insurance company is going to evaluate your property, so take the guesswork out of it.  If you have NO coinsurance, your limit is your limit, with the only out of pocket expense being your deductible.  The carrier will not SLAP you with any coinsurance penalties! 

3. Ordinance or Law Coverage

Every insurance policy should include Ordinance or Law coverage. This is commonly known as the “bring it back to code” coverage. In the event of a loss, the city or county will visit your property to assess the damage – upon their inspection, if they deem your property does not meet “current code requirements” they will order you to vacate the entire building or community (including the undamaged portion of the complex) and upgrade the property to current code requirements. If Ordinance or Law coverage is not included on your insurance policy, the costs to complete these upgrades (usually extremely substantial) will have to be paid out of pocket by the owner.

Here is what Ordinance or Law covers:

(A) Coverage for Loss to the Undamaged Portion of the Building -Pays for the loss of value of an undamaged portion of the existing building which must be demolished and/or removed to conform with municipal ordinance, code, etc.

(B) Demolition Cost - Pays for the cost of demolition of the undamaged portions of the building necessitated by the enforcement of building, zoning orland use ordinance or law. 

(C) Increased Cost of Construction - Pays for any increased expenses incurred to replace the building with one conforming to building laws or ordinances, or to repair the damaged building so that it meets the specifications of current building laws or ordinances.

4. Assault and Battery Liability Insurance

When reviewing your property general liability coverage with respect to premises liability concerns, check for the assault and battery exclusion, and whether this is a concern with respect to your business operations.  “Assault and battery” generally means violence toward a victim, whether by staff, invitees or other third persons.  Property owners and operators are frequently sued by the victim when violence occurs on or near their premises, often under a theory of negligent provision of security, negligent hiring, and/or negligent supervision.
 
When a real estate property general liability insurance policy contains an assault and battery exclusion , the policy may not cover a claim for injuries arising out of an assault and battery, even if the insured is found liable under a legal theory of negligence. This coverage is important to have at real estate rental properties!

CORE Insurance Group - Your RE Property Insurance Partner

CORE Insurance Group ---our professional team of insurance advisors have 22+ years of experience in the real estate, property management, multifamily and commercial insurance industry---specializing in real estate assets and commercial property insurance coverage. We have strong and long-lasting relationships with over 50 of the top commercial real estate insurance companies and offer 15 real estate specific for our industry clients. 

CORE Insurance Group and our program partners are currently serving our industry clients in 44 states and across 200,000+ doors equating to $10 billion+ of insured real estate assets. And because of this kind of nationwide reach and the depth of our industry coverage/ programs---we bring a significant amount of new business to our underwriters and as such, are able to leverage our size and offer expanded coverage at extremely aggressive and competitive rates. This means, we are experts in the real estate insurance sector, we can share with you best-practices in our industry and keep you posted on leading/emerging trends.
 
With CORE Insurance Group …we offer a wide array of products to protect your real estate assets, eliminate coverage duplication and eliminate overhead costs by consolidating all of your properties into one policy. To name a few, our products include coverage for your commercial real estate buildings, loss of rents, general liability, umbrella coverage, director and officer liability coverage, building ordinance or law, equipment breakdown, workers compensation and employee dishonesty coverage….

We provide coast-to-coast insurance coverage for:

==>Single Family Rentals
==>Apartment communities
==>Apartment owners/property management company liability
==>Apartment buildings
==>Industrial/Warehouse
==>Retail/shopping center/office buildings
==>Condo/HOA associations

***Real estate property insurance is a must to protect your company's assets. While property insurance isn't required by law, it's a wise investment to limit your liability in the event of a natural disaster or other calamity. If written improperly, your business may not survive financially. Real estate property insurance policies should be specifically tailored to the specific location and should cover a variety of losses, including damage from fires/wind/hail, electrical surges, even embezzlement by an employee should be considered. Property valuations are frequent causes of conflict between insurers and insured. You can avoid valuation problems by carrying the proper coverage.

Brought to you by:

541 East Tennessee Street Suite120
        Tallahassee, Fl. 32308
        Office: 850-297-9242
         Cell: 850-570-6479

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