Understanding Recoverable Depreciation

Chances are that you have never heard the words “Recoverable Depreciation,” unless you have had a homeowners insurance claim. If you have had a homeowners claim, and are staring at that word, you probably don’t know what it means, are also staring at a check, and might even be a little bit angry the check wasn’t as much as you had expected. Well, understanding recoverable depreciation is important because it is money that you can get back and can help you repair your house.

Real estate appreciates (goes up in value), right? Well… generally yes, but the individual parts of a house depreciate (go down in value). Let’s take a roof as an example. As a homeowner you know that if you own your house long enough that you will have to replace your roof. If you have composite shingles they will actually tell you what the expected life of the shingle is. For example, you might hear “this is a 20 year shingle.” That is the manufacturer telling you this shingle will be shot in 20 years. So, let’s say that at year 10 you have roof damage. You are 50% into the life of that shingle and therefore 50% into the life of the roof. The adjuster will come out, calculate out what the cost to replace that roof will be let’s say $10,000, then subtract the recoverable depreciation (let’s say $5,000), subtract the deductible (let’s say $1000), and cut you a check (in this case $4,000). WHAT!?

Let’s understand what happened here. Let’s start with the deductible, that’s easy it’s the part you are responsible for. The recoverable depreciation is the replacement cost of the home minus the depreciation. So the amount they cut the check for is, theoretically, the current value of the roof.

But wait, my policy covers me for replacement cost. Good. That makes that depreciation recoverable. See, insurance policies can be written at the Actual cash value, or at the Replacement Cost. Actual Cash value depreciates the parts, and pays you less. Replacement Cost pays to get you new stuff. At least that is the simple explanation. The problem is, once again, your crummy neighbor. You would never do this, but your neighbor is trying to make money off insurance which insurance is designed for it is supposed to put you back where you were not provided a windfall. See your neighbor doesn’t really want to replace his roof, he wants to pocket the money instead. So the company will pay him, and because of him, you, the actual cash value of the roof. Then,if you provide invoices or show that the roof is in the process of being replaced or has been replaced (each company is a little different), then you get that depreciation back. You are able to “recover”the depreciation. While it is a pain, it’s how the insurance companies make sure that your crummy neighbor does what he is supposed to do, which creates a hassle for all, but because the insurance companies know that you are an upstanding citizen that is going to replace your roof, they created recoverable depreciation. So in this case you would be able to get $9,000 for your roof. The replacement cost minus the deductible, which is what you should have expected in the first place.

Ancillary Auto Insurance Coverage

So we have already seen how we insure an auto for its primary coverage options. We cover liability, uninsured/underinsured motorist coverage, medical payments, collision, and other than collision, which would all be primary coverages. There are a few ancillary coverage options that vary from company to company, so it’s important to ensure that if these ancillary coverage options are important to you that you have a company that covers these well.

ANCILLARY AUTO INSURANCE OPTIONS

  1. Roadside Assistance – Yes Auto Insurance companies do offer roadside assistance. This is the one time when they will often offer ancillary coverage for mechanical breakdown. Meaning you can get this coverage for when your radiator dies. That said coverage varies widely from company to company. Some have mileage limits, others dollar limits, so if this is important to you, please make sure you understand how your policy will cover you.
  1. Rental Coverage – This is not coverage for when you want to get a rental policy for a vacation, but rather in the event of a covered loss you can get a rental car for the time that the vehicle is unable to be used because it is in the shop.
  1. Diminishing Deductibles – It is becoming more and more common that auto insurance carriers offer diminishing deductibles. The idea behind diminishing deductibles is that every year you don’t have a claim your deductible will go down until at some point you don’t have a deductible. If you have a claim the deductible resets to whatever you purchased. This ancillary coverage can help a lot.
  1. Accident/Violation Forgiveness – Yes even insurance companies understand that mishaps happen to the best of us. So you can get ancillary accident and minor violation forgiveness from the companies. What these means is that the rate doesn’t automatically increase when something happens.
  1. New Car Replacement – If you just bought a new car, some companies have a coverage called new car replacement. Basically it protects you from the depreciation that happens to new cars the moment that you drive them off the lot. So if you have an accident to in your brand new car it pays the amount that you paid for the car rather than the actual cash value of the car, which even if you just bought it a week ago can be drastically different.
  1. Gap Coverage – If you have a loan on your car, new or old, gap coverage is extremely important. It covers the difference between what the car is worth, and what you owe on the loan. In the event of a total loss, this ancillary coverage, which can be very affordable, can be worth thousands and can ensure that you don’t end up upside down in the event of a loss to your car.

There are many other ancillary auto insurance coverage options that can be added to your vehicle depending on the company you choose. Start your quote online now, and then make sure you have the coverage you need by talking to one of our experienced agents, and be sure to tell them if one of these ancillary coverages is important to you, because they are ancillary and won’t come automatically on your policy. Unfortunately once you have an accident you will not be able to add these ancillary coverage options, so be sure it’s important that you get it right away.

This is a general explanation of coverage and different companies may treat these coverage options differently for information on exactly how your policy will respond please refer to your policy declarations page as well as the terms and conditions of your insurance policy.

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Insurance Coverage Forms

Insurance coverage isn’t always the same. Understanding what is covered under your insurance coverage form is important. Sometimes you will hear agents throw out the terms basic, Broad, or Special in regards to the coverage. These are called coverage forms, and they basically indicate what the policy will cover you for. Other times they will use terms like DP1 which typically has basic coverage. Or DP3 with has special coverage. Below is what these usually mean, and what is covered under each form (a little leagalese here check your policy, these are general explanations carriers can include and exclude coverage, so its best to check your policy).

Again, these are general and a company has the right to exclude things like Vandalism and Malicious Mischief from a given policy (like a vacant home policy), or if something changes in the home coverage can change. For example, if you run a business out of the home or rent part of it out things can change so tell your insurance agent because these things can change coverage, but generally, this is what is included in each form. So which is right for you? If you ask your insurance agent they will typically tell you are special and deserve that coverage, I would tend to agree. Special is the best is so many ways, and don’t you deserve the best? With the Special form you are covered for it unless it is excluded, and there are lots of things that can be excluded. These include flood, earthquake, and landslide. These can be purchased separately, and we suggest that if you live in an at risk area that you do so to insure you get the coverage you need.

Again, this is a general explanation of insurance coverage forms. Please check your policy for specifics, and your policy will have different terms and conditions, definitions, and can change coverage. Carriers can include and exclude coverage, so its best to check your policy.

Insurance Reality Check

I have heard it said that insurance isn’t worth the paper it’s written on when a claim happens. As an insurance man, that pains me, because regardless of the product, most problems with claims are related to misunderstandings and misplaced expectations. One of the biggest issues investors run into is assuming something is covered, when it’s not. Insurance policies have exclusions. Understanding the exclusions on your policy can go a long way in making sure you have the right coverage.

For example, you will be hard-pressed to find a company that will cover your lack of knowledge. Wrongful eviction isn’t covered, so you need to be a smart investor and learn how to do things legally or use a property management company. Flood is not covered under a standard policy, so you will need a separate policy if there is potential for flooding. Damage done to the house by your tenant will not be covered. Make sure you get good tenants by doing background checks. Earthquake or earth movement may or may not be covered depending on your area.

The bottom line is understanding your asset, the risks of the area in which you have invested, what needs to be covered, and what the exclusions are. In some cases a separate policy may be issued, in other cases it won’t be. The key to insurance is understanding your risks and deciding whether or not you need the coverage for those risks. The key to making sure your insurance is worth something is understanding the risks, choosing how to manage those risks, and making sure that if you insure something, you understand what’s covered. At least then you can have an expectation when a claim occurs.

Six Things to Check On Your Rental Property Insurance Declarations Page

Insurance at a glance, does it exist? Yes it does it’s called the declarations page. What is most important about the declarations page? Well there are 6 things to check.

Rental Property Insurance Declarations Page – The quick and dirty

6 things to check on your declarations page

When looking at an insurance policy a great place to start is the declarations page because it’s usually what’s at the top of the stack of papers you will get. It is the one that you need to review most carefully. Why? Because it tells you VERY important things such as:

  1. Who is insured – You, your wife, your LLC, your corporation, “who.” This is who will get paid. This is who will be covered. Make sure this is right.
  2. What is insured – This will be the “location.” Does this match the address of your rental property? If not, you are opening a crack, and your property may not be insured.
  3. Then it will break down the coverage parts of the policy, and explain HOW MUCH. So it might say: Coverage A – $100,000. Is that the value of the property? It’s an important question. This is the maximum that you will be paid. So make sure you understand it.
  4. Then it will explain the deductible. Two thoughts here. Can you afford this deductible? Do you keep this cash on hand? What’s the relationship between your deposit and your deductible? If you don’t keep cash on hand, you should consider having your deductible equal you deposit.
  5. Next, it will explain how the home will be fixed, or the loss settlement provision. Kind of important. What will the company pay you. This is an important concept. Don’t get a great deal on an ACV policy only to feel the pain and what replacement cost once you have had a claim.
  6. Finally it might list any applicable endorsements. Understand what these are. Endorsements change the coverage. It could be that the endorsements are providing you awesome coverage… it could also be that they are taking away something really important.

Riveting… I know, but this is what drives all else in the policy. If you have a loss, it’s the first thing the adjuster will review. “This policy covered the home at 123 Happy Street in Pleasantville. Is the house that burned, at that address? Yes? This policy covers the house for $100,000, and that is the most we will pay.” Everything starts at the declarations page; it drives the policy. If you do nothing else review it, and make sure the declarations page is correct.

Start your quote online now, and you can have a Rental Property Insurance Declarations page in your hand in no time.

ABOUT GILA INSURANCE GROUP’S REAL ESTATE DIVISION

The mission of Gila Insurance Group LLC when it comes to investors is to be the insurance team member of choice for real estate investors that invest in single family homes as rental properties or seasonal homes, to educate real estate investors on how to protect their investments and cash flow properly in order to avoid catastrophic effects on their business and investments, to protect these investments with the best insurance coverage available, while offering value as defined by quality coverage and affordable prices, to act in the best interest our clients by being honest, accountable, and service oriented, and most importantly to have fun and creating lasting friendships while helping people be Covered Investors!

Why start with our Mission Statement? Partly because we feel it explains why we exist and what we are passionate about. Real estate is one of the single greatest investments known to man providing an amazing mix of asset appreciation with consistent return on investment through monthly cash flow. Many of us have stumbled into real estate investment and have become landlords by accident, others of us are investors; the difference is purpose and education. While we don’t claim nor desire to be the place for information on real estate investment, we do aspire to educate investors and landlords alike on the risks that they face as real estate investors and how to best protect their assets and cash flow. Many times this is through insurance, although there are some risks that are uninsurable and the best risk mitigation method is through education. Regardless having an insurance professional as a part of your investment team is invaluable to ensure you don’t lose your investment.

For those risks that are insurable we strive to provide the best insurance value by representing multiple insurance companies to ensure you get the best coverage at the best price possible. We only represent insurance companies that carry an A-rating with an independent auditor such as A.M. Best Company so as to make sure our partners are financially able to keep their promise to you.

While we would love to tell you that everything will always go off without a hitch, we live in a real world where stuff happens. But we are committed to being honest in all situations, accountable for our actions in our dealings with you, and we will be service orientated. You matter, let us show you.

Finally we’re not robots, we like people, we know if we trudge into work it shows. We do work that matters, we protect your investment, we enjoy it and it’s always more enjoyable with we can work with friends.

WHAT CAN YOU DO TO BE PROACTIVE WITH YOUR INSURANCE CLAIM

If you have had a claim, being proactive can help your claim to get settled more quickly. Here are a few tips of how to be proactive with your claim.

  1. Get help – Contact the authorities. This can include the fire department, emergency medical personnel or the police depending on the nature of the claim.
  2. Take Precautions – This could mean moving a vehicle out of traffic, putting a tarp over a damaged roof, or making things as safe as they can be to prevent others from getting injured. Don’t put yourself in harms way to take these precautions.
  3. Gather information – Take video or pictures of the damage, make notes about what was damaged, and how.
  4. Obtain Contact Information – Depending on the nature of the claim you will want to get the insurance information from other driver’s, contact information of witnesses.
  5. Report the claim – Don’t wait report the claim as soon as possible.
  6. Cooperate with the adjuster – This might sound funny, but isn’t as common as you might think.

Also, avoid oversharing and trying to settle things yourself. This means don’t sign documents, don’t discuss the claim with someone other than your insurance agent or company assigned adjuster. In your policy there are a number of conditions that you must meet in order to have your claim settled. Trying to operate outside of the standard process can slow the process down, and cause all sorts of problems, but being proactive inside of the rules can help your claim be settled more quickly.

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Motor Home Insurance – Insurable Motorized Units

RV Insurance Motorized Units Safford, AZWhen it comes to RV Insurance, there are several different types of insurable RVs including “Motorized” and “Non-Motorized” units. When it comes to “Motorized” units there are several different shapes and sizes, but most the most common types are motorhomes. However, even motor homes come in all different shapes and sizes. Below is a summary of the most common types of Motorhome insurance the RV Insurance Professionals at Gila Insurance Group provide:

Class A Motorhome Insurance – When it comes to Motorhomes or RVs, most people immediately think of the traditional Class A Motorhome. These beautiful machines are amazing in terms of luxury and amenities. Typically they are anywhere from 20-40 feet long, and can sleep anywhere from 6 to 10 people. Class A motorhomes are built on specially designed motor home chassis, which are built to handle the heavy load of a home on wheels. Class A motor homes are unique in their living space, and usually have at least two slide outs. The Maximum value we can insure for these units is $2,000,000.

Professional Bus Conversions Insurance – The key words here are professional conversion. These units are buses that have been modified to provide temporary living quarters. These units can be incredible, but again we are only able to insure those that have been modified professionally.

Class B Motorhome Insurance –These are also known as conversion or camper vans, because they are built on a Van Chassis. Two to four people can sleep in this set up, although it can be tight quarters. Despite the similarities to vans, these units are very different, and include some combinations of sleeping, kitchen and toilet facilities. Moreover they must include electric power and a water hookup. Despite the amenities, usually these are very basic due to space restrictions, so while you will probably be able to stand up inside of a Class B motorhome, don’t expect the luxurious amenities of a class A–they will be basic.

Class C Motorhome Insurance – Somewhere between the luxurious large Class A and the minimum utility of a Class B sits the Class C. These are also known as Mini-Motorhomes. Distinguished by their cab-over sleeping quarters, these units are typically built on a van or truck chassis.

Toterhome Insurance – Similar to the Class C variety are toterhomes. However, rather than being built on a Van or Truck chassis, a toterhome is built on a semi chassis. Meaning toterhomes are typically modified freightliner or Peterbuilt semi-trucks that include the equipment that make them eligible for RV insurance.

Medium Duty Tow Vehicle Insurance – This is an odd addition to the “motorized” unit list. Not because it is not motorized, but because it typically has no living quarters. Medium duty tow vehicles are large trucks–such as Peterbuilt, Freightliner, Ford F450s, GMC 4500–or others that have been modified to tow fifth wheel trailers.

Regardless of the class, or type of motorhome or motorized unit you have, the Team at Gila Insurance Group can provide motorhome insurance for most types of Motorhomes. Even if we haven’t listed the exact name or class (like a super C or a B Plus) we can probably still insure it.

For more information, call us at 877-784-6787, we are ready and willing to help you.

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Valuing Your Investment Property For Insurance

Investment Property Safford, AZValuing of an investment property can be difficult. Add in the idea of a different value for insurance and you have a complicated world.

Demystifying Insurance Valuation

Lessons from Goldilocks

The valuation of any asset can be tricky, and who better to understand that than an investor.

I once approached an owner of a property that I liked.  I had heard through a mutual friend, that he was thinking of selling it and I approached him, hoping to close the deal before he put it on the market. The short of it is, I asked him what he wanted for it. His response illustrates the point I am trying to make. “Well…” he said. “I had it appraised, and as an owner occupied unit it is valued at $121,000. As a Rental Property, it is valued at $185,000.” Okay…truth is, he never did answer my question.

The “market” value of a home is in the eyes of the beholder, and thus the negotiation. Obviously we try to be objective by looking at comparables and the price per square foot.  A home can be appraised, but even that can be subjective (funny how they often come out to the same price as what the seller was asking, right? But I digress). Then you have your finance gurus who talk about valuation models that seek to determine the return, and therefore the value. We hear things like “Cap Rate,” and “Discounted Cash Flow,” that are other ways investors valuate properties.

For insurance purposes we care about one thing and one thing only; indemnifying you. We care about what the replacement cost of the home is. What it is going to cost to get you back to where you started. For investors, this means we are going to get the asset back where it was, producing cash flow. Also, we don’t care how much the land cost. The land will still be there to build upon; we only care what it costs us to start installing the walls, roof, floor coverings, deck, etc. We are looking for the replacement cost.

How do you determine that? It could be through appraisal (minus the land value), or through another expert opinion (i.e. a contractor or real estate agent). It could be through a “Cost Estimator Tool” provided by your insurance agent, or a combination of all these sources. The key is to find an accurate valuation and insure the home for 100% of that amount. Not more and not less.

Why? For a couple of reasons:

  1. This is the amount that the company will pay if there is a loss. You already will be on the hook for a deductible. Let’s not complicate things. Let’s minimize your out of pocket expense.
  2. You don’t want to over insure it, you will pay too much for premium and the company will raise its eye when you insure, your $125,000 property, for a million dollars. They will be inspecting it, and will cancel your policy, if it looks like things are not accurate.
  3. You don’t want to under insure it. First off, the most the company will pay is their “limit of liability” or the value you have on your policy. So if you under insure it, you will have your deductible, plus the difference between the replacement cost and what you insured it for, as your out of pocket expense. Finally, if you get too low on the valuation, you start getting penalties. Usually this kicks in at lower than 80%. Some companies will penalize you by saying that if you insure the home for less than 80% they take the claim to an actual cash value world. Others start reducing the amount they will pay of the claim, by the same percentage that you have underinsured the property.

So, when it comes to valuation, remember Goldilocks and the Three Bears. You don’t want too hot (over insuring the property). You don’t want too cold (underinsuring the property). You want 100% of just right (replacement cost). So do some homework, figure out what the home is worth and insure it just right!

To get an incredible quote these coverage sections start our online quote form. To Talk to a licensed agent about this coverage call us at 1-877-784-6787.

This coverage explanation is for illustration purposes only and is general in nature. Coverage explained here may not apply to your policy, State, company, or situation. For more information about how your policy would respond in the event of a loss, please refer to the terms and conditions and declarations page of your policy.

Additional Coverage for Your Home Insurance

Homeowners Insurance policies, whether for your own home or a rental property, are very specific about what they cover, but oddly enough they throw in a couple of “extras” or additional coverage. What are those? Let’s take a look!

Home insurance Safford, AZADDITIONAL COVERAGE

There’s free stuff in my insurance policy? Yes.

So, great news there are only four Homeowners Insurance Coverage parts, so that part was simple, but next comes the complicated part; additional coverage (s). Yeah! Now for any of you that might be catching the sarcasm in that last comment, there are actually some good things in here. Every policy is different so here are some of the most common and important:

  1. Debris Removal – Have you ever seen a fire? Walls may still be standing but completely destroyed. What knocks those crumbling walls down and hauls them away? Debris Removal! See, good stuff.
  2. Trees, plants, shrubs – Not a lot here, but you can usually get coverage up to $250-$500 or so per tree. Obviously there will be limits, but landscaping can be expensive.
  3. Fire Department Service Charge – Sweet, nice that you don’t have extra stuff, like cost of fire department services coming your way.
  4. Collapse – This is an odd place to have this coverage, but it’s nice that they add it.
  5. Glass – Sweet.

Again, there is more to each of these, but nice that they add them and make them available as additions for your homeowners insurance. Start your quote online or call us for an immediate quote 1-877-784-6787.