Are You Buying Wasted Insurance?

Let me start with a simple observation. Insurance companies are in the business of selling policies, and one of the most effective ways to sell more coverage is to describe what could go wrong. Fire, flood, fraud, lawsuits. Every scenario sounds plausible when someone paints the picture for you. And once you've heard the worst-case story, saying no feels reckless. But here's the thing. A scary scenario is not the same as a scenario that is likely to hurt you. Your job as an owner is to separate the two. Let me give you a recent example from my own portfolio. My previous insurer had included loss of income coverage as part of our commercial property policy. On paper, it sounded sensible. If the building is damaged so badly that you can't occupy it, the policy pays you for the income you lose while the space is being repaired. The problem is that this isn't how our business would actually respond to that situation. If the building were damaged to the point of being uninhabitable, we would not shut down. We'd find a temporary sublease, move the team and the operations into that space, and keep running while the original building was repaired. The business would continue. The income would continue. We would never collect on that policy. When we removed the loss of income coverage from the policy, our premium dropped by more than 50 percent. Think about that. More than half of the premium was tied to a coverage we would never realistically use in the way it was written. Now, I want to be careful here. I'm not telling you to strip coverage from your policy. Loss of income coverage can be essential for some businesses. If you operate a restaurant, a medical office, or a manufacturing facility that can't easily relocate, a shutdown really could be catastrophic, and that coverage may be worth every dollar. The point is that the right answer depends on how your business actually operates, not on how the salesperson frames the risk. ---------- **Real Estate Espresso Podcast:** Spotify: [The Real Estate Espresso Podcast](https://open.spotify.com/show/3GvtwRmTq4r3es8cbw8jW0?si=c75ea506a6694ef1) iTunes: [The Real Estate Espresso Podcast](https://podcasts.apple.com/ca/podcast/the-real-estate-espresso-podcast/id1340482613) Website: [www.victorjm.com http://www.victorjm.com/](http://www.victorjm.com http://www.victorjm.com/) LinkedIn: [Victor Menasce](http://www.linkedin.com/in/vmenasce) YouTube: [The Real Estate Espresso Podcast](http://www.youtube.com/@victorjmenasce6734) Facebook: [www.facebook.com/realestateespresso](http://www.facebook.com/realestateespresso) http://www.facebook.com/realestateespresso%5D(http://www.facebook.com/realestateespresso) Email: [[email protected] mailto:[email protected]](mailto:[email protected] mailto:[email protected]) **Y Street Capital:** Website: [www.ystreetcapital.com http://www.ystreetcapital.com/](http://www.ystreetcapital.com http://www.ystreetcapital.com/) Facebook: [www.facebook.com/YStreetCapital](https://www.facebook.com/YStreetCapital) http://www.facebook.com/YStreetCapital%5D(https://www.facebook.com/YStreetCapital) Instagram: [@ystreetcapital](http://www.instagram.com/ystreetcapital)

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  Welcome to the Real Estate Especial Podcast, your morning shot of what's new in the world of real estate investing. I'm your host Victor Manash. Today's topic is one that could save you thousands of dollars every year. How to avoid paying for insurance coverage you don't actually need. Now, let me start with a simple observation. Insurance companies are in the business of selling policies and one of the most effective ways to sell more coverage is to describe risks that could go wrong. Fire, flood, fraud, lawsuits, every scenario sounds plausible when someone paints the picture for you. And once you've heard the worst-case story, saying no feels reckless. But here's the thing, a scary scenario is not the same thing as a scenario that's likely to hurt you. Your job as an owner is to separate those

• 0:44Speaker 00

  two. Let me give you a simple example from my own portfolio. My previous insurer had included loss of income coverage as part of a commercial policy. On paper, it sounds sensible. If the building is damaged so badly you can't occupy it, the policy pays for the income you lose while the space is being repaired. Problem is, this is not how our business would actually respond to that situation. If the building were damaged to the point of being uninhabitable, we would not shut down, we wouldn't lose income, we'd find a temporary sublease, move the team and operations into that space and keep running while the original building was repaired. The business would continue, the income would continue. The loss of that coverage was designed to protect against would be at the most the

• 1:27Speaker 00

  cost of the temporary space and the move, not weeks or months of lost revenue. And the existing policy would cover those extraneous costs. So, we were paying a meaningful premium every year to insure against the loss we had already planned to avoid. So, when we removed the loss of income coverage from the policy, our premium dropped by more than 50%. I mean, think about that. More than half of the premium was tied to a coverage we would never realistically use the way it was written. Now, I want to be careful here. I'm not telling you to strip coverage from your policy. Loss of income coverage might be very appropriate for some businesses. If you operate a restaurant, a medical office, a dental clinic, a manufacturing facility that cannot easily relocate, a shutdown could be catastrophic. And that coverage might be worth every penny. The point is that the

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  right answer depends on how your business actually operates, not on how the salespeople frame the risk. So, here's the lesson. Before you accept any coverage, ask yourself a simple question. If this event actually happened, what would you do? Walk through the scenario step by step. Where would you go? What would it cost? What would you lose and for how long? If your honest answer shows the exposure is small or negligible, the coverage might be redundant. Let me give you a second example, and that's cyber fraud coverage. Insurers will often offer a separate policy to protect your property business against cybersecurity fraud, things like phishing, wire fraud, or social engineering attacks. It sounds very current and very urgent, and the headlines make it easy to believe that you're exposed. But when you read the details of these policies, you'll often find that they cover a very

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  narrow set of circumstances. They may require you to follow very specific verification procedures. They might exclude certain types of transfers. They might have low sublimits that cap payouts well below your actual exposure, and they may only respond if the fraud occurred in exactly the way that they defined in the policy. In other words, you could be paying for a policy that sounds much broader but only pays out under very specific unusual conditions. And meanwhile, the better protection against this type of fraud is often operational. Dual approval on wire transfers, callback verification for any change in banking instructions, multi-factor authentication in your accounts. These controls cost very little compared to an annual premium, and you should do them anyway. They will reduce the likelihood of

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  loss in the first place. That doesn't mean that cyber coverage is never worthwhile. It means you should understand exactly what it does cover, what it excludes, and whether the cost makes sense relative to your risk and your controls. So, how do you put this in practice? Well, there's four steps. First, read the policy, not just the summary page. It's rare that customers actually read the entire policy. The details live in the exclusions, the conditions, and the sublimits. Second, for each policy, ask what scenario it protects against and how you would really respond to that scenario. And then, third, ask your broker to price the policy with and without each optional coverage. You can see exactly what each one is costing you. And then, fourth, revisit this every renewal. Your business

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  changes, the buildings change, and your risk changes. And so too does the pricing of the policies. Your coverage should change with it. Insurance is a tool for protecting yourself against the losses you can't afford to absorb. It's not a way to eliminate every imaginable risk. Fear is a poor guide for buying coverage, and clear thinking is a much better one. As you think about that, have an awesome rest of your day. Go make some great things happen. We'll talk to you again tomorrow.