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PROPERTY INSURANCE DEDUCTIBLE VERSUS PREMIUM

SAVING PREMIUM HAS EVERYTHING TO DO WITH SELECTING THE ADEQUATE DEDUCTIBLE TO MEET THE INVESTORS OUT-OF-POCKET THRESHOLD. SELECTING A HIGHER DEDUCTIBLE TO SAVE ANNUAL PREMIUM MAY NOT MAKE SENSE TO ALL PROPERTY INVESTORS. SELECTING THE PROPER BALANCE BETWEEN PREMIUM AND DEDUCTIBLE HAS EVERYTHING TO DO WITH THE INVESTOR’S ABILITY TO COVER A LARGER PORTION OF COVERED CLAIMS. THINK OF IT THIS WAY: IF AN INVESTOR HAS THE CASH TO PAY A HIGHER AMOUNT FOR A LOSS, THEN THE INSURANCE COMPANY WILL OFFER LOWER PREMIUMS. HOWEVER, IF THE INVESTOR IS TIGHT ON AVAILABLE CASH, THEN IT WOULD NOT BE PRUDENT TO SET A HIGH DEDUCTIBLE IN ORDER TO SAVE $125 PER YEAR (AS AN EXAMPLE). IF A $5,000 DEDUCTIBLE WOULD CREATE A FINANCIAL HARDSHIP FOR THE INVESTOR TO SAVE $125 ANNUALLY ON THE PREMIUM, THEN THE INVESTOR SHOULD CONSIDER LOWERING THE DEDUCTIBLE TO MEET HIS/HERS FINANCIAL THRESHOLD RATHER THAN TRYING TO SAVE PREMIUM.

AN INVESTOR THAT OWNS SEVERAL PROPERTIES, 10 OR MORE PROPERTIES, SHOULD BE THE ONE CONSIDERING A HIGHER DEDUCTIBLE TO SAVE PREMIUM. LET’S CONSIDER A PROPERTY INVESTOR WHO OWNS 10 PROPERTIES CARRYING A $2,500 DEDUCTIBLE ON EACH PROPERTY WHO ALSO HAS THE ABILITY TO PAY $5,000 WITHOUT CREATING A FINANCIAL HARDSHIP. SAVING $125 PER PROPERTY WOULD RETURN A SAVINGS OF $1,250 PER YEAR. AFTER 4 CLAIM-FREE YEARS THE INVESTOR WOULD HAVE SAVED ENOUGH MONEY TO COVER 1 CLAIM ON 1 PROPERTY. THAT’S LIKE A FREE CLAIM PER 4 YEARS.

LOWER DEDUCTIBLES ALLOW THE ABILITY TO PAYOUT AS YOU GO. AN INVESTOR IS TRADING A LOWER OUT-OF-POCKET EXPENSE WHEN COVERAGE IS NEEDED FOR A HIGHER PREMIUM, “PAY AS YOU GO”. CONVERSELY, AN INVESTOR THAT ACCEPTS HIGHER DEDUCTIBLES IS SAYING HE/SHE IS WILLING TO INCREASE OUT-OF-POCKET EXPENSE IN EXCHANGE FOR SAVING PREMIUM OR “PAY AS YOU NEED”.

ANOTHER POINT OF ACCEPTING HIGHER DEDUCTIBLES IS SOLELY AS A PREVENTIVE MEASURE. IF THE AVERAGE CLAIM IS $5,000 OR LESS, IT DOES NOT MAKE SENSE TO FILE THE CLAIM. THE COVERED LOSS NEEDS TO BE SIGNIFICANTLY HIGHER THAN THE DEDUCTIBLE TO CONSIDER REPORTING THE CLAIM. SAVVY INVESTORS KNOW THAT A REPORTED LOSS, REGARDLESS OF THE PAYOUT, IS RECORDED IN THE INSURANCE INDUSTRY DATABASE FOR FUTURE REFERENCE WHEN APPLYING FOR ADDITIONAL POLICIES. INVESTORS WITH 2 OR MORE CLAIMS IN A 3 YEAR PERIOD ON ANY OWNED PROPERTY FACE THE RISK OF NOT BEING ABLE TO OBTAIN AFFORDABLE COVERAGE, HENCE, A HIGHER DEDUCTIBLE PREVENTS FILING CLAIMS WHICH COULD COST THE INVESTOR SIGNIFICANTLY HIGHER PREMIUMS.

NEW INVESTORS NEED TO REVIEW THEIR FINANCES FOR PROPER MIX OF PREMIUM VERSUS DEDUCIBLE. CASH FLOW IS ESSENTIAL FOR OPERATING A PROFITABLE BUSINESS. REDUCING EXPENSES TO INCREASE CASH FLOW, ESPECIALLY IN TOUGH ECONOMIC TIMES, ONLY MAKES PRUDENT BUSINESS SENSE. HOWEVER, IT DOES NOT MAKE SENSE IF THE INVESTOR DOES NOT HAVE INCREASED CASH FLOW SUFFICIENT TO COVER THE FINANCIAL BURDEN CREATED BY HIGHER DEDUCTIBLES. REVIEWING THESE POINTS WITH YOUR INSURANCE AGENT IS ESSENTIAL IN ESTABLISHING A PROFITABLE AND SUSTAINABLE BUSINESS PRACTICE.