Real Life Planning Podcast Episode 25: Insurance Answers for Real Estate Investors with Steve Meyer

In Episode 25, I talk to my husband and rental property business partner, Steve Meyer, about insurance answers for real estate investors. Steve is “work optional” now, after an impactful career as an actuary/ insurance executive in reinsurance and insurance. I think you're going to enjoy his perspective on how to maximize the value of your relationship with your insurance company, protect your assets, and make wiser decisions about your real estate business.

“ As [a] business owner, I want to regard my insurers more like a partner rather than something that I'm just forced to do.” - Steve Meyer

This week on Real Life Planning Podcast:

Takeaway Quotes:

“...it's much easier to have a partner who you pay a relatively small amount to take that risk for you.”- Steve Meyer

“Insurance is a partnership.” - Cynthia Meyer

“...even though you may say, "Oh, I have our property within an LLC that protects our assets." Having an umbrella policy protects the assets within the LLC.” - Steve Meyer

Learn more about our financial journey together as a couple: Marriage and Money

More by Steve Meyer:

• What Is a Monte Carlo Simulation and How Does It Impact My Financial Plan?
• Insurance for Real Estate Owners: How Much of A Property Deductible Should You Carry?

Connect with Cynthia Meyer:

• Cynthia Meyer on Facebook
• Cynthia Meyer on LinkedIn
• Cynthia Meyer on Twitter
• Cynthia Meyer on Instagram
• Cynthia Meyer on Pinterest
• Email: cynthia@reallifeplanning.com

About the Real Life Planning Podcast

Host Cynthia Meyer welcomes fascinating guests to share real life stories of how they are realizing their financial potential. Each episode explores practical, realistic steps to create results.

Transcript - Real Life Planning Podcast - Episode 25

[00:00:06] Cynthia Meyer: Welcome to the Real Life Planning Podcast. This is episode 25 with my favorite person in the world, my husband, Stephen Meyer. And today we're going to talk about insurance answers for real estate investors. I love talking to this person every day; that's why I married him. And I think you're going to enjoy some of the wise guidance that he has and his ways of thinking about how to maximize the value of your insurance. To protect your assets and to make wiser more confident decisions about your real estate business. So Steve, good morning. It seems like I just saw you. 

[00:00:42] Steve Meyer: Good morning. It's great to be here. 

[00:00:45] Cynthia Meyer: Just for context, we are recording this at completely opposite sides of the house in hopes of not having our sound overlap each other so we are hoping when we listen to this, it's going to sound good.

Tell us a little bit for those of you who don't know you like I do, tell us what's important to know about you. 

[00:01:01] Steve Meyer: I would say to your viewers, I spent about 35 years in the insurance business. I am an actuary with an exciting career. What actuaries do is they set rates and reserves for insurance companies and I've done my time.

I've put in my 10,000 hours in the insurance business. 

[00:01:20] Cynthia Meyer: And one of the other things to I think people should know about you, Steve, is that what we are trying to coach people to do in Real Life Planning is to build and scale a rental property business so that they can eventually be work optional. And that's what we did, right?

That's what you did for yourself is that you were able to create a lifestyle for yourself where you could be work optional at a really young age. 

[00:01:45] Steve Meyer: Thank you for saying that I'm young. That's always been my goal and that was a goal that we shared as our partnership. So yes, that is what we set out to do and what we did. And building our real estate portfolio was part of that. 

[00:02:00] Cynthia Meyer: Yes. Exactly. And interesting for anybody who's listening, and maybe we'll dig into this in a, in another conversation but we were work optional before we actually chose to be work optional.

You were work optional before you chose to walk away from your corporate career, which was long and impactful, right? And, but you took some time before you walked away from it. And what are, tell us what you're doing now. 

[00:02:27] Steve Meyer: Right now I, I'm spending a lot of time working on things that really interested me and and as you said we were work optional for a while before I left. And, it was just a matter of getting to the point where, the number of things I wanted to do exceeded the value that I got out of working. So, what am I doing? I'm spending more time with my kids than I was able to before.

I'm doing stuff around our house that I've I've wanted to do for a long time. I'm working on things for my own self that I have wanted to work on for a long time. So there is no one thing I'm doing. I'm doing a lot of things. I don't see how people can be bored when they... 

[00:03:08] Cynthia Meyer: That's right. And because we do have a real estate business, we have a rental property business, there is- there are always things to do for that. And you've definitely taken on the lion's share of those activities as Real Life Planning has grown and we have more clients. 

[00:03:21] Steve Meyer: Yes. And that was one of the things I wanted to do with was stop working for somebody else and work for ourselves.

[00:03:29] Cynthia Meyer: Yeah. And we get to have lunch together almost every day which is really cool. 

[00:03:33] Steve Meyer: Which is cool. 

[00:03:34] Cynthia Meyer: So, getting to the topic of our conversation today, which is not just real estate questions for their insurance needs, right? But insurance answers for the real estate investor.

So let's start with that basic question because I really think as a financial planner, people do not understand what insurance is and what it's for. So what is insurance?

[00:03:57] Steve Meyer:  That's a very perceptive question because I hear a lot of misunderstanding about insurance. Some people think it's a bank and think, oh I've been giving money to this insurance company for ages now it's time for them to pay some of it back to me and that's not what really insurance is. But let me just first start out by noting that there is a few different kinds of insurance. There is health insurance and there is life insurance and there is property and casualty insurance.

The property and casualty insurance is what we'll be talking about today because it's what applies to homeowner's insurance or commercial property insurance. It also applies to automobile insurance. But despite there being several different kinds of insurance, the basic insurance principle is the same, which is each year you pay a premium to an insurance company and what that insurance company does in return is it will pay for costs that would be too large for you to pay yourself. So whether that means more money than you have right now, or whether that means I could pay it, but my lifestyle would really severely change.

That's what you pay in insurance. What insurance is, you're paying somebody else to take that risk so that if something bad happens, which it sometimes does, you are not going to have to change your lifestyle for that. 

[00:05:20] Cynthia Meyer: Okay. So what's the most obvious risk for a real estate investor? 

[00:05:26] Steve Meyer: For real estate investors, obviously, our assets are our properties. And our most obvious risk is that our properties are going to be damaged in some way. The classic one is that our homes will burn to the ground, or there'll be an earthquake and it'll, that'll level our house or a a windstorm that will level our house.

For most consumers, homeowner's insurances are required by their mortgage company because the mortgage company realizes that the consumer probably wouldn't be able to pay off their house, pay off their mortgage if there was a a fire at their house. And so, the mortgage company kind of enforces that insurance part on consumers.

As business owners, I want to regard my insurers more like a partner rather than something that I'm just forced to do. I want to regard them as a partner, who they're part of the partnership is to take really bad risks off of my shoulders, so I don't have to worry about the possibility that I'm going to have to come up with hundreds of thousands of dollars to rebuild my properties or something like. The good thing about this partner is within some parameters, they're happy for me to define how our partnership looks. They're happy for me to go look around to see if I want a different partner every single year or if I want to change the amount of our partnerships. If I want to say I'll take on more risk now and you take on less that are perfectly happy. If I leave that partnership and I want to come back to it in a few years, they're happy for me to come back to that partnership, as well.

It's a partnership where typically consumers think about it as a one-way partnership, which is they send money to the insurance company and don't get anything back in their own mind. But in reality, what they're getting back is they don't have to worry about taking the possibility that they'll have to liquidate their entire life savings to pay off in the event of a bad...

[00:07:22] Cynthia Meyer: Some kind of catastrophe. 

[00:07:24] Steve Meyer: Catastrophe, yes. 

[00:07:25] Cynthia Meyer: Yeah. Or even just an expensive problem, right? Yeah. 

So I've been hearing a lot from clients who own property in the area of Naples and after the last hurricane in Florida- and everyone's got insurance claims, right? And some of them are more expenses than the others. But I was talking to somebody the other day that I had a $200,000 insurance claim. Most people don't want to take on that kind of risk in a self-insured way. They're not going to put away an extra $200,000 in a savings account somewhere in case something like that happened, right? 

[00:07:57] Steve Meyer: Can I just say, (How can you customize risk sharing with the insurer?) that's kind of the groovy part about the partnership is if you're a big firm and you can pay out $200,000, you can say to your insurance company, " I'm going to take the first $200,000 worth of risk."

Or on the other hand, if you're a first time home buyer where you've stretched all your savings to make a down payment and coming up with an extra thousand dollars would be a real hardship, then you can say to your partner, I want you to pay everything that's more than $250 or something like that. That's just an example of, as I was saying the partnership can be tailored by myself to fit what I want; really want. 

[00:08:37] Cynthia Meyer: I love this way of looking at it, that insurance is a partnership.

But I think a lot of people would say, " How can we reduce the cost of this partnership because people do you know, that they have a tendency to look at, you know, what's coming out of their checking account every time they pay a premium and they don't really think about it that much until they have a claim.

[00:08:57] Steve Meyer: It's funny, in 35 years, we never found a single person who said, "How could I increase the cost of this partnership?" (Should you shop around for coverage? ) So let me just say the first way which I don't think gets enough discussion is shop around for coverage. There are literally thousands of insurers. If you look it up, you'll find there is thousands of insurance. Not all of them write property insurance. Not all of them write automobile insurance or anything like but this applies for any kind of coverage. Shop around for coverage. That might mean going to two or three different independent agents, but what you find is different companies have different strategies at different times.

Executives retire on a regular basis and strategies change. So, what one company might have decided, "Oh, this is the kind of company customer we want." And if you fit into that kind of customer, they're going to be a really good deal for you. And five years later, that executive may have retired and new executive came in and said no, we don't want that kind of customer.

So if you shop regularly, you're undoubtedly going to find yourself a better deal. 

Another way to do it is through the use of deductibles. I actually wrote a blog post for you on this topic. 

[00:10:09] Cynthia Meyer: That's right. We'll put that in the show notes. Yeah. 

[00:10:12] Steve Meyer: What we as consumers of insurance want to do is take on as much risk as we can up to the point where we say an event like that is going to cause us to change our lifestyle.

The reason for that is the insurance companies have an estimate of how much it's going to cost to to insure you and the more risk that they take on, the more it's going to cost them to insure you. And that's perfectly fine except that they have their own internal expenses and they have to pay agents commissions, and stuff like that.

So the more expected amount of claims you're seeding off to the insurer, they're going to have to just load that for their own expenses. So over the long term, you're going to save money by not paying for their expenses. Obviously, this also varies based on your ability to pay.

As I said before, if you're a first time home buyer, you may only be able to bear a relatively small deductible. On the other hand if, you have several cash flow positive properties and significant amount of savings, then $10,000 or $200,000, maybe something that you could take in stride.

And in that case, you're probably going to save money by buying a higher deductible. And as I said in my blog post for you, I discuss a strategy for deciding what's the right deductible for you. 

[00:11:30] Cynthia Meyer: What's this sweet spot? Yeah. Yeah. And that was a really helpful blog post and I encourage everybody to read it, especially if you're in the process of renewing your property and casualty policies, your landlord policies, or your homeowners.

It seems, especially among newer homeowners and newer real estate investors, people think, oh, I'm just going to have a small claim, or maybe I want a really small deductible and so they might not actually have enough coverage because they think, oh the risk of the earthquake, which you have to buy separate policy for, or even just the house burning down, they underestimate the risks of that. What would you say to that?

[00:12:12] Steve Meyer: That's a very interesting question. (How do property owners underestimate risks?) One which many books have been written about and they all have titles that are something like, Insurance to Value, which is just as interesting as it sounds. 

[00:12:25] Cynthia Meyer: I'm going to put down that book that I'm reading right now and pick that one up.

[00:12:28] Steve Meyer: For the sake of discussion, just let's talk about an example. Let's say I had a hundred thousand dollars property and I could say, let me have a $5,000 deductible on that property. If that buyer said what if instead of taking a $5,000 deductible, what if I said I'll take just a $50 deductible and only buy $95,000 of coverage?

And which seems like a pretty good strategy to me. Unfortunately, insurance companies have doped out that strategy pretty early on. And so they will require you to buy insurance to value. 

[00:13:09] Cynthia Meyer: Just to be clear, for people who are listening, if the house is worth half a million dollars, you need to make sure that the coverage is what the house is worth.

[00:13:18] Steve Meyer:  So in our example of a hundred thousand dollar house, they'll make you buy a hundred thousand dollars of insurance. They'll let you have a deductible, but they won't let you take off money on the top. Looking the other way around, they also won't allow you to buy $200,000 of insurance.

And the reason for, that's pretty obvious. You have a pretty obvious incentive to be a little careless with your fireplace if you buy that. But the reason they won't let you buy, say, $95,000 or $90,000 is, the way insurance companies set their rates, assumes that you're going to buy to full value.

And so they set their rates based on the value of your home, assuming you're going to buy to full value. If you buy less than full value, then the rates that they're charging are going to be too low. And it's certainly possible that they could set up a little matrix where you said, okay, this person's only going to buy 80% of the value of their home.

So what rate would you charge that? And your rate then would be higher than you would've paid if you had paid. I'm talking about the rate, which means the amount per hundred thousand dollars of coverage. The rate you'd pay would be higher if you were only buying 80% versus what you would pay if you insured to full a hundred percent of the house value.

Your savings would disappear when the insurance company set up that that system. But in reality, the insurance companies don't allow you insure for less than full value. 

[00:14:39] Cynthia Meyer: Sure. And I think a lot of people, they know very little about how insurance works as a financial institution. And so they think that insurance companies just make up the money that they charge people. But in fact, that's not true. 

[00:14:53] Steve Meyer:  I denied that several times to you. 

[00:14:55] Cynthia Meyer: Every state has a department of insurance. Insurance companies are required to file their rates with the State Department of Insurance and certainly is something you know more about than I do. But it's not just made up. There is some science behind it. 

[00:15:08] Steve Meyer: If it was made up, I would not have had the wonderful career that I had. That is what I spent my career on is working out those rates. And it is as you say, it's much more technical than that.

If you think about it, the reason is pretty clear. If you charge rates that are wildly incorrect, then somebody's going to come in and they're going to be charging the correct rates. If your rates are too high, then you're not going to write any business. And if your rates are too low, you'll write plenty of business because people will say, wow this, company has really low rates and then you're not going to have enough money to to pay off all... 

[00:15:43] Cynthia Meyer: ..to pay claims. 

Insurance is a critical component of functioning markets, right? And we couldn't have free markets without insurance. 

[00:15:50] Steve Meyer: That's what we, in the insurance industry like to believe- that we are the grease that allows commerce to work.

And really, if you think about it, it does. Who would be willing to hire workers to work if there wasn't such a thing as workers' compensation insurance? Because you'd have to have so much money to pay workers' compensation. Who would be willing to ship goods overseas if the ship sank? You'd lose all of your goods.

In those cases, it's much easier to have- rather than having all that money that in reserve, it's much easier to have a partner who you pay a relatively small amount to and they'll take that risk for you. 

[00:16:26] Cynthia Meyer: You're transferring the risk to them or sharing the risk with them, depending on the circumstances.

So what other things can I do as a rental property owner to reduce my insurance costs? 

[00:16:36] Steve Meyer: Let's talk first about the things that you can do to reduce your costs. And a lot of insurers offer you a discount if you have alarms. I will say that one thing is that we found is that the alarm systems have to be monitored. So while there is a benefit to having alarms, you also have a cost to having alarms.

Other insurers offer discount programs that are more unique to those insurers and you can ask your insurance agent about those programs. But once you got past alarms and your deductibles and stuff like that I would be pretty surprised if you were able to save a significant amount of money through one those things that are easily accessible to you.

Indirectly, there are other ways you can save money though. First, as we discussed, you can shop around. But also importantly, don't make a lot of claims. The insurance company is happy to be your partner, but they're not going to be very happy to be your partner if you're going to be using that partnership more than they expect you to be using it. Your insurance premium's probably not going to be affected if you just have one claim because insurance companies expect that you're going to have to pay claims every once in a while and because if they didn't, you wouldn't need insurance.

They're probably not going to be bothered if you pay one claim. You actually see that on a lot of TV commercials. You have the first claim forgiveness and stuff like that. It's more the insurance companies recognizing the fact that you have a claim once in a while is not unexpected.

But if you have a lot of claims, then the insurance company's going to start asking themselves maybe this person is unlucky or careless. Careless would be a better term than unlucky. Maybe this person is careless about their properties or they don't maintain them well enough or something like that.

If you make a number of claims, then your insurance premium is possibly going to go up. Obviously, this all depends on how many properties you have. If you have hundreds of properties, your insurance policy premium is going to reflect the fact that they could expect a few claims every single year.

But if you have a relatively few properties and you make a whole bunch of claims, then the insurance company is going to start asking themselves as whether you maintain your properties well enough or not. 

[00:18:47] Cynthia Meyer: Let me just- and we saw that I think in one year or a while ago, where there was both a hurricane in New Jersey and we had an incident at one of our rental properties that required making insurance claims in both places and we did see our rates go up. 

[00:19:02] Steve Meyer: In fact, yes. That was before we had our properties within our LLC. And so, the insurance company had our name on all those properties. You're right, they didn't so much increase our insurances. They let us know that they were thinking about not writing us. They didn't want to be our partner anymore. 

[00:19:18] Cynthia Meyer: And it was just coincidence, right? Yeah. 

[00:19:20] Steve Meyer: As I said, our insurance companies recognize that people have bad luck every once in a while, and they recognize coincidences have happen every once in a while but they want to avoid is somebody who's just habitually having claims.

And let, me just also note, this is tangentially related to deductibles as well. (How are deductibles and claims related?) If for example, if you lived on a golf course and you had your deductible set really low, and you call up your insurance company every time a golf ball goes through your plate glass window in the front of your house, they're going to be unhappy with you pretty quickly.

So, you do better to set your deductible at a point where a golf ball going through the plate glass window is not going to trigger a claim for you or build up something in front of your plate glass window to protect it from from golf balls. 

As I said, a deductible is related to how often you make claims, and we've seen that ourselves related to the example you gave is that same year there was a lot of wind and it blew down a lot of trees on our own property and we didn't make a claim on that. As it happened, they would've come in below our deductible anyways and so there was no point to us notifying the insurance company having think, "Oh, they've made another claim here."

We just paid it ourselves and it did not bother our insurance company. 

There are some other things that are less, sorry, let me just say less direct things you could do to affect your premium but I'll just note them for you because when you're considering properties, you can see some things that might cause your premium to be higher.

A lot of your premium is based on what your construction material is and how far your property is from a fire hydrant and from a fire station. You're not necessarily going to decide what house you want to live in based upon how far you are from a fire hydrant, but if you're looking at an investment property and you're comparing different investment properties, you should be aware that if one's miles away from a fire station, your insurance premium is going to be higher, all of the things being equal, than the one that's that's relatively close to a fire station.

Other potentially significant costs are flood and earthquake insurance and... 

[00:21:31] Cynthia Meyer: Yeah, and people often don't do that. They skip it because it's expensive; particularly in the flood category. (What about flood insurance?)  So many people don't have flood insurance because they're not mandated to buy it by their lender necessarily, but they do live in some kind of evacuation zone or an area of the country where it floods more than normal. They don't buy it and they get in trouble.

[00:21:52] Steve Meyer: I would say that most mortgage companies are going to require you to have flood insurance if you live in a floodplain. Your real estate agent will be able to tell you whether the home you're looking at is in a floodplain or not and there is no wiggle room on that. Floodplains are set by a government function and the premium is... 

[00:22:14] Cynthia Meyer: Sure, sure, but what I mean is like the- I think Florida is a good example, right? So people who live in an evacuation zone but aren't required to have flood insurance because they don't live on the water, right?

But they have a non-zero chance of that happening anyway. Am I thinking about this the right way? 

[00:22:28] Steve Meyer: We are thinking about it in the right way. That's something I can tell you, we didn't consider it when we bought this house as it turned out, we live very close to a fire station. But yeah, it does affect what your premium is going to be.

We don't have a California property anymore, but we used to live in California and earthquake insurance wasn't required back then. I don't know if that's still true or not, earth earthquake insurance is a big expense. If you're considering whether you want to buy property in California or somewhere else that may or may not be a consideration for you, but I can assure you that you will be faced with a question of whether you want to purchase earthquake insurance in California.

[00:23:05] Cynthia Meyer: So what about negotiating for the price of coverage? Is that something that policyholders can do? 

[00:23:12] Steve Meyer: As property owners, we're used to negotiating for things but I would say that negotiating for the price of coverage, you're probably not going to be successful for that.

And the reason is, most policies are just not large enough to interest an insurance company in negotiating with you about it. A part of my career was spent working on policies where we did negotiate the price and then we'd go several rounds on that negotiation.

But in my experiences, those policies were in the hundreds of thousands or millions of dollars a year. So in that case, it was worth it to my employer to spend a lot of time and to negotiate on that policy. For regular kind of run-of-the-mill property owners such as ourselves where our policy is significantly less than hundreds of thousands of dollars.

They're happy to think if you don't like that price God bless you and...

[00:24:06] Cynthia Meyer: You can look elsewhere.

[00:24:06] Steve Meyer: ...and we'll see you. We'll see you down the road. 

[00:24:09] Cynthia Meyer: So since you mentioned earthquake and flood insurance, what are some other insurance products that we should be thinking about?

[00:24:17] Steve Meyer: Let me just first say that there are some coverages within your homeowners or business owners policy that some people aren't aware of. The most important in my mind of these is liability insurance. That covers you if somebody's injured on your property.

The good thing about it is somebody injuring themselves on your property doesn't happen very often. So the coverage isn't very expensive. But there is a whole lot of peace of mind that comes from that coverage. There is the classical example is somebody trips on your child's toy and breaks their back and then sues you. I could just say if that happened to us and I didn't have liability coverage on our homeowner's policy, I'd be scared to death when I started getting the letters from the attorney. For a relatively small amount of money I have, I just would go to my insurance company and say, "Hey, I had this incident. I'm getting these letters." And then I'd get a professional claims handler who would handle that, and they're used to dealing with the plaintiff lawyers. So that's a coverage that has more value to me perhaps than what the insurance would pay is because it gives me a lot of peace of mind.

[00:25:25] Cynthia Meyer: I think that's another example about how your insurance company can actually be your partner. So whether it's any kind of liability claim, whether it's it in your homeowner's or landlord policy, or an auto claim, for example, the insurance company has done this a gazillion times, right? They know what to do. They know how to process the transaction. They know how to deal with a plaintiff's lawyer and it makes it less scary, I would think. 

[00:25:51] Steve Meyer: Yeah. Yeah, definitely. As I said, for the price that you've paid, you get professional people who handle claims. The old joke is that people get into an accident and they think, "Oh, this is worth a million dollars, or something like that." These claim handlers have seen that kind of incident hundreds of times because that's their job and they pretty much know what it's worth; what someone can get out of that kind of claim. So they're not going to be frightened by the possibility of an attorney saying we're going to sue you unless you pay a million dollars or something like that.

Let me just also say within your regular homeowner's policy is there is a small amount of workers' compensation insurance which a lot of people don't think about but if you had a nanny or if you have a housekeeper come in and they injure themselves, you'd be on the hook for a workers' compensation claim. First off, I wouldn't know how the heck I would handle that kind of claim. But I would also be in workers' compensation there is potentially unlimited liability.

As I said, for a relatively tiny amount of money, I got a professional claim handler to come in and handle that and I don't have to worry about hiring a nanny or a housekeeper to come in. I don't have to worry about the liability.

[00:27:00] Cynthia Meyer: And of course that depends though. That's a situation where you really have to read your policy and make sure that things like that are covered or know if they're not covered. 

[00:27:09] Steve Meyer: Or you could ask your agent. They're happy to answer that question. 

I have to be honest, on a commercial property policy, I don't know whether that coverage is in there.

We have a professional property manager who handles our properties and she only hires people that are bonded and have insurance. Other people who don't have a professional property manager may be worried about that. So that's something you can ask your agent. They're happy to answer that kind of question. 

Another coverage that's already in for free on your liability is for what are called additional insured. I don't know if you've seen this, having worked in the insurance business, I've seen it all the time. And so, I wasn't bothered when our mortgage company for our commercial loan said, "You need to name us as an additional insured on your insurance policy."

I said, "Okay, fine." I think had I not worked in the insurance business, I would've been nervous about that. But you just call up your agent and say we need to name an additional insurer. So we actually name our property manager as an additional insured. Our mortgage loan on our commercial- they're all additional insureds on our policy. That doesn't mean that they get free insurance. What it just means is kind of defines who's covered under our policy and who's not. If an incident happened on our policy, a, good plaintiff attorney is going to name everybody.

This makes it clear that there is a, you know, there'll be a coverage and there'll be one set of lawyers who's who are going to be working on the claim from that incident. 

[00:28:40] Cynthia Meyer: I think that's a really good point, Steven. And (How often should I review my insurance policies?) for anybody who doesn't do this regularly, is to make sure you're reviewing all your policies annually and just making sure that everybody that should be covered is covered.

A lot of times, I see clients' policies and they haven't named their property manager, for example, right? Or they put the property in a living trust but they didn't name the trust. It all sorts of gems there that people should just be taking a look at at least once a year.

[00:29:08] Steve Meyer: If you have a property manager that's of any size, they'll have their own insurance policy. And so, they may or may not require you to name them as an additional insured. But your point about the trust is a very good one. You definitely want to have your trust named as an additional insured.

[00:29:24] Cynthia Meyer: What about umbrella liability? 

[00:29:26] Steve Meyer: What an umbrella insurance does is it provides additional limits on top of your- these are liability limits- on top of your regular policy. So in your homeowner's policy, you may get a hundred thousand dollars or $250,000 as your kind of limit that comes with your homeowners or your commercial property. Umbrella provides you with a million dollars or 2 million or 10 million dollars; you could buy as much as you want, really. You probably don't need to buy that much, but you could buy as much as you like. 

As we discussed when we were talking about general liability, the probability of having a large claim is relatively low; so coverage is really inexpensive. So...

[00:30:10] Cynthia Meyer: Yeah, it's not expensive. Yeah. 

[00:30:11] Steve Meyer: So for a few hundred dollars, you can buy an additional million or two of limits on these policies. That's a lot of peace of mind for a relatively small amount of money.

And so even though you may say, "Oh, I have our property within an LLC that protects our assets." Having an umbrella policy protects the assets within the LLC, and so we have umbrellas on our LLC and on our personal assets. Umbrella, I should say, covers automobile as well as your homeowners.

The umbrella costs on your rental properties is relatively low because the majority of costs for an umbrella policy is driven by your automobile insurance. 

[00:30:52] Cynthia Meyer: I was reading some research when I was writing a blog post that said that most the lion share of umbrella claims are from auto claims. You obviously know more about that than I do. Now that we have two- we have two teenagers, right? One who's driving- we've been thinking about a lot. 

What about renter's insurance? So, I usually tell clients that they should mandate that their tenants have renter's insurance. So tell, us more about that and what you think about it.

[00:31:18] Steve Meyer: Renter's insurance covers the personal property of your renters but doesn't cover the structure, at all. If a fire occurred, then we as landlords would be covered for the the value of our structure, but our landlord insurance policy wouldn't cover the contents of the individual tenants' apartment.

Obviously in a homeowner's policy, you do get coverage for some of your contents...

[00:31:44] Cynthia Meyer: But a renter's contents would not be covered. 

[00:31:46] Steve Meyer: Some landlords require their tenants to buy, others don't require them.

There is a direct benefit to the landlord from doing it because if someone slips and falls in the renter's apartment, then the renter's insurance company would pay for it, whereas, if there is no renter's insurance that person that slipped and fall may well come after the landlord for liability.

The benefit to doing that is relatively low. I wouldn't, to get back to our original discussion, I wouldn't expect to see a reduction in your premium as a landlord because you require your renters... 

[00:32:21] Cynthia Meyer: Have rent's insurance. Yeah. So this has been really informative.

Is there anything else, any other wisdom or guidance that you want to share with people that have listened all the way through? 

[00:32:33] Steve Meyer: Thank you for listening all the way through. Let me just repeat what I said right about at the beginning about shopping around for coverage. A lot of states actually maintain- this is actually probably more related to automobile insurance, but they maintain ratings on insurance companies and they'll show you how much companies charge for a different kind of standardized policy so you can see which are the more expensive or less expensive companies in your area.

Different companies have different strategies at different times for different kinds of customers. So you may or may not fall close to what that standardized policy. I would also say that if you're asking your friends who's a good insurance company, it's probably- you're not going to get a very good quality answer for that.

And three is, as we discussed before, most insurance companies aren't the most popular companies in the world. Most people regard them as, I just pay and I don't get anything. Usually the one time that people have an interaction when they make a claim, then they find out their claim's not worth as much as they thought it was.

They wrecked their car and they thought their cars worth $30,000 and the insurance company says, "Oh, it was only worth $20,000." Something like that. Insurers are not in a popularity business. So if you ask someone if they had an experience with insurers, it's rare that somebody says, "Wow, these are great. They paid way more than they expected to."

Your friends are probably, they may be well-meaning, but they're probably not a very good source. As I said, a lot of the estate insurance departments collect data on complaints, for insurance companies and stuff like that. They do the statistical analysis to tell you what companies give you better service or worse service.

There are also websites that also compare insurers and those are useful, although I would say that a lot of them are just trying to get you to buy insurance through their website. You have to be careful when you use online sources to make sure that this is somebody that's actually objective as opposed to somebody who's just trying to get you to buy insurance through them.

[00:34:33] Cynthia Meyer: This has been really helpful. I think lots of nuggets of wisdom here. We'll put some of the resources that you refer to- we'll put them in the show notes. 

Where can we find you online and can we find you online?

[00:34:45] Steve Meyer: You can not find me directly online. You can you find me like Tom Jones said, "Wherever people are fighting injustice, that's where you'll find me."

[00:34:55] Cynthia Meyer: So if you want to learn a little bit more about Steve who does not like to do social media, you can go to the Real Life Planning website and click on one of his blog posts and see his profile. 

Thanks so much for having this really informative conversation today. 

For anybody who is listening, if you want to go ahead and subscribe for notifications of future episodes, then you'll hear about them as soon as they come out.

And if you have questions that you'd like us to answer, please email us at podcast@reallifeplanning.com 

[00:35:26] Steve Meyer: Thank you. You've been a charming host.

[00:35:28] Cynthia Meyer: All right. Cheers everyone. 

[00:35:29] Steve Meyer: Bye-bye. 

If you like this video podcast, consider joining Real Life Planning’s Question of the Week where CERTIFIED FINANCIAL PLANNER™ and rental property business owner Cynthia Meyer answer the most common questions about real estate financial planning direct to your inbox each week. https://mailchi.mp/reallifeplanning/question-of-the-week.

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