Who self insuring your properties? Any suggestions will be appreciated. I think getting liability insurance is the key. If the building burns down, no compensation, I know, but if it is just a kitchen for $50K, that may be worth the risk. How many kitchen will probably burn in the next 25 years. No fires in 25 years so far….. What does everyone suggest or how did you go about being your own insurance? P.S. I bought a 30 or 40 year roof (I could look it up, but won’t take the time now) so that I would not have to buy another one in

my lifetime. This was 12 years ago. Now the insurance company says they will cancel me because the roof is 12 years old. Their new policy -not carrying any building with roofs over 12 years old. So, who is self insuring? What company to use for liability insurance only, etc. Anything further I need to consider about this? Thanks

I have, mainly when the property is not worth covering. Had one a few years ago that was just waiting to be torn down. It was paid for, livable until it wasn’t. But I self-insured for about 5 years, about 3 of them with a resident. I did carry liability on it. Then the roof failed and HVAC failed. Told tenant to move out and tore it down.

CJ,

I am sooo tempted to self insire with liability coverage.

In our 46 years and MANY properties we’ve had 6 fires and 52 roofs due to hail.

Adding up all those claims we have paid waay more insurance than we claimed. Would be cheaper to self insure.

Some fires were minor, a few cost $20k to rehab. We pay much more than that each month for ins.

Be careful...a person died in one of those fires and a few slip and fall threats.

I had one loss. It was in the early days. I had lost control of a situation, and was ready to tell him we were done. I drove past the house that afternoon to give him his notice, but a bunch of his friends were helping him move something, and I didn't want to embarrass him in front of his friends. Fast-forward two or three hours, and I get a phone call telling me that house was on fire. He was trying to do a midnight move-out by candlelight, because he hadn't been paying the electric company, either. He got one load moved out, and knocked over a candle on the way out.

I learned a lot from that situation. Ended up selling it to a retired handyman for less than the cost of the lot. The house itself could be renovated, but it needed more time and money than I could spare to re-renovate it all over again. He eventually passed, and his kids inherited it. I was this close to buying it back for back taxes--- but they got caught up.

I've also had one stove fire on a 2-year-old electric stove. (Fortunately, they got it smothered without affecting the structure.) At first, I suspected the tenants were at fault for being careless, because it happened when they were frying fish. But I brought it by the fire department before scrapping it, and they were able to look at it and show me the evidence that it was a weird random malfunction.

I am going down the middle. I have a $5000 deductible. The way I look at it is my two biggest loss risks are hail damaged roofs and a fire.

When I look at the roof, by the time the insurance removes the deductible and the depreciation there is almost no coverage anyway. Over half of my roofs are between 12 and 20 years old. By the way, it takes a lot of serious hail damage (think baseball size stones) to make a roof leak. I tend to just leave them for a few years when they get a little dinged up.

That leaves fire. So far I haven't had a major fire. A couple of small kitchen fires requiring less than $5000 in repairs. A couple of bedroom fires (smoking in bed) that were less than $1000 in repairs so I guess I've been lucky over the past 30 years.

The liability insurance I keep very high, I think I have a $2M blanket. With all the ambulance chasers, I don't skrimp here.

I had a friend who also went self-insured. So I asked him a few questions that he had no answers.

If a tenant has cause against a landlord (with assets) how difficult will it be for the tenant to get an attorney who takes the case on a contingency arrangement?

If a landlord needs to defend himself, how much will legal services cost him. Her Hours? And per case?

I have been self-insured for several years due to cost and, to me, bs insurance rules. All buildings are up to code. I have a deal with my long-term contractor that if any catastrophe occurs he will handle it for monthly payments.

put this question in the box with:

What are the chances of something happening to all of them all at once?

For us, extremely high. Hurricanes. Others live in the tornado belt.

What insurance company is going to insure for liability only with NO fire insurance. Never seen such a thing.

You may survive 1 or 2 fires, but have a tornado or a natural disaster hit your city as mentioned above (hail storm) and your clock will be cleaned.

I knew a L.L. that had been in the rental business for over 30 years, and decided he would go that route of self insure and it didn't work out for him when a tornado completely wiped him out of the rental business.

Bill, we tried high deductible and found the quotes were NOT that different - and when we found that in a named storm, deductibles were doubled - and we had 7 roofs get damaged that year - well, you can do that math.

When I went from $500 to $5000 deductible, my rate dropped over half.

I went back and pulled the info from the roof that lead me to this decision almost 30 years ago. The roof was over 15 years old and still in great shape. Hail storm knocked holes through multiple layers, ripped the tar paper under it, and dented the decking. Cheapest roofing quote was $3600. Insurance only paid $427 after deductible and depreciation. I saved more than they paid on that roof by upping my deductible to $5000 the next year. In just over 4 years I saved more than the roof cost to replace, granted I didn't pay anywhere close to $3600 by shopping/negotiating. I don't know anyone that would say they have had to replace every roof more frequently than every 4.25 years so definitely money savings.

CJ, thanks for bringing up a topic I've been working on for some time now, and I also have questions and concerns.

Sorry I'm late to the party for this topic.

Okay, not going to be a short answer. I have started the process to put each property I have in it's own LLC. Then all of the properties, each with their own LLC will be owned and under a Master LLC That will be owned by my family trust.

We learned about this Master LLC from a St. Louis tax attorney a few years ago when we attended a seminar for Special Needs Trusts as we have 4 children and youngest has Downs Syndrome. The plan was/is to incorporate this move into asset protection and estate planning.

Unfortunately it isn't all done yet due to everyday life getting in the way and more because I probably micromanage too much. Trying to improve last problem from the great advice from many folks in this forum. Thanks Brad for your lease (It WILL save you 1,000,000's) and Sid ACGTVM and many more.

I am NOT near as organized as many of you and do many things less than efficient but am trying to learn and improve. My most frequent advice to someone that asks my advice on LLing is to tell them 'Do as I say, not as I've done!'

This set up should provide protection that anything happen to a property the maximum exposure I have is whatever is in that particular LLC. Also I was worried about tax consequences and daily bookkeeping concerns for so many LLC's but my regular CPA and my tax attorney both assure me all will pretty much be unchanged.

Now my experience with the numbers. First problem I encountered with self insuring was most my properties had liens on them by banks. No bank I have found will loan money without full coverage. I have always leveraged using Lines of credit on current properties to buy new properties unencumbered so could offer cash with no inspections or appraisals so buyers would find my offers though lower less restrictive and choose me.

We have accumulated a couple hundred properties through the last 35 years and have paid many $$$ to insurance companies.

Probably 10-15 years ago only major way I knew to save money was increase deductibles to $5,000 per property which saved 100 to 200 per policy. So that savings resulted in a net savings that paid for itself first year but still had to maintain full coverage to satisfy bank regs.

I had looked into 'Umbrella' coverage with very large deductibles buy my agent didn't find anything that was cost effective.

Today, not acquiring (as many, don't tell my wife) but selling properties I don't have as much debt so can drop to liability only saving a TON of money.

Our insurance bills have 10 properties grouped per policy so average premiums for these policies is 6,000-10,000 for full coverage with 5,000 deductible for EACH property. Most of my units are 45-120k units.

Savings to go to liability only, drops premiums to less than $100 per house, saving $400-800 per unit in a 10 unit policy save 5,000.

So without actually doing math for every unit I have started putting aside $5,000 into an investment account with Commerce Bank and investing that savings in the stock market. I should be able to fund this account to greater than 50,000 in first year and expect it to snowball from there. I can replace most any of my units with that kind of savings based on my 35 plus years LL'ing.

Here is history of what my insurance has paid out over the years. Note requiring renters insurance is a great thing, I still don't do this across the board but it has saved me a ton of money in claims.

Approximate total my insurance has paid is less than 200,000 in 35 years so 5,800 per year.

Of course we didn't start with as many units as we have now but if I had realized the money I was throwing away all these years I probably would have considered getting more properties lien free to self insure and just buying liability coverage.

Side note, like you we've had losses as well. We've had houses burn down, some covered by my insurance, some by renters insurance from tenant, some no coverage. We've had natural deaths, murders, murder suicide's. One house had 2 fatalities and even though we were cleared of any wrong doing by state fire marshal, the family still got 100,000 out of my insurance. Wind damage, trees' falling on houses. Houses all copper and HVAC's ripped out, major vandalism, go to court this week one such troublemaker did over 13,000 in damage. I'll never recover but still I feel my duty to take to court, get judgment to warn others in future of this guys past.

I too was and still concerned about major natural disaster's like 2011 Joplin, MO had major tornado wiped out lot of the town. Something like that would wipe me out as well.

I would suggest each person to evaluate what stage of the game you are in apply the numbers and choose what best suits the risk/reward you are willing to take.

Like I mentioned greatest hurdles for me was lack of much savings for going to greater deductibles, banks requiring secured properties to have full coverage. Probably the largest challenge was for me to accept the risk doing this.

After all, this is exactly what insurance companies do with their actuary tables and invest their premiums in other venues.

Good Luck to all with hopes of a great 2023

You could slowly ease your way into self ensuring by increasing your deductible to the point where in only a complete loss would you file a claim.