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Mike Fried is a public insurance adjuster in Austin, Texas. Mike has over 17 years of experience with insurance claims and is the incoming president of the Texas Association of Public Insurance.
Today we discuss all things insurance, including what to look out for when obtaining insurance policies on your properties, why you should reach out to a public adjuster instead of relying on the valuation from the insurance company valuation, how casualty losses impact your taxes, and much more.
A public insurance adjuster is a consumer advocate insurance representative that works only for the insured policyholder.
Most clients call a public adjuster first, at the onset of an insurance claim. Commercial and large loss claims is a niche specialty, and there are generally many parties involved, such as an insurance adjuster and forensics for business interruption, CPAs, engineers, and an estimating team.
When it comes to estimating costs, many factors are at play. Public adjusters must understand the costs for materials and labor of building components and tailor these amounts for the specific market. Generally there will also be a site inspection. The same methodology doesn't apply across asset classes. Hotels are different from apartment complexes, so each individual claim must be analyzed.
Considerations in an Insurance Policy
In multifamily, coinsurance is a common issue. Unless you have an A+ or an A property, you're often price shopping for your policy. Shopping for price on the policy comes with lower coverages and higher deductibles.
Coinsurance means that the asset owner is responsible to carry a certain amount of insurance to the value of the building, generally speaking it's 80%. Carrying less than this % of the building value in insurance can result in a penalty on the settlement of the insurance claim.
Mike sees many claims mishandled from start to finish, and he sees many asset owners don't carry enough coverage.
For single family homes, investment properties have different coverages than a primary residence. For an investment property, there likely won't be personal property coverage and there should be loss of rents coverage.
Mike often sees sewage backup excluded and limitations on water damage. Water damage is the most common cause of loss, and insurance companies have started limiting coverage for this frequent occurrence in investment properties.
"An investment property [generally] wouldn't have any coverage for personal property... Make sure you have the proper amount of insurance to value at no less than 80%, have manageable deductibles, and have coverage for loss of rental income. One thing I see excluded is sewage backup and limitations on water damage. Water damage is the most common cause of loss, and insurance companies have starting limiting this coverage."
Mike urges investors to always secure the best coverage, even if it means shopping several providers and looking at high premiums.
"Every 10 years, you may have an insurance claim, that's the rule of thumb."
Types of Insurance Policies
- Actual cash value: the amount of money you would be owed today for the replacement cost less depreciation.
- A big misconception is when people think they actually have replacement cost, they feel like they will receive the entire cost of replacement. This is not true, it's subject to depreciation. This is limited coverage.
- Replacement cost: The full cost of replacement. This is full coverage at today's value.
Guaranteed replacement cost doesn't usually kick in unless there's a total loss, commonly seen with fires.
If you have a casualty or theft loss, you decrease the basis of your property by the cost of insurance or any other reimbursement and by any deductible not covered by the insurance. The basis would then be increased by the amount of work put into the property.
Learn more about Mike and his work with his email and phone number included at the end of the episode or visit his website: https://strategicclaimconsultants.com/