Posted by SCook85 on February 22, 2001 at 20:57:44:
Bob,
Your insurance premium that is being collected as part of your PITI by the bank is being escrowed until next year when your new bill comes due. When your new bill comes due, the bank will have collected monthly from you for one year- the bank uses this money to pay for your new policy.
It is there way of insuring that you pay for your insurance.
Steve
Rehabs and Insurance Binders? - Posted by Carey_PA
Posted by Carey_PA on February 22, 2001 at 19:37:39:
I was wondering, do you have to get each and every property insured at a year at a time EVEN when you don’t plan on holding the property for a year? I know a lot of lenders want you to have your insurance paid up for a year, but what if a lender doesn’t require this and you know you just want to sell the property retail after rehabbing it, do you still have to buy a years worth of insurance or what?
I’m just curious, because I am getting ready to get an insurance policy on my first sfh (and it’s $333/yr. and this includes loss of rent coverage and the insurance company said I can pay quarterly). But with my question above, I’m thinking in advance. Any thoughts?
Before I posted this question my thought was that I’m just gonna have to dish out $333 per property even when I know
1-3 months down the line, I’m gonna sell it. Cost of doing business I suppose…am I right? I hope I’m wrong 
thanks,
CAREY
Sounds like a Landlords Policy - Posted by Robert(N.Y.)
Posted by Robert(N.Y.) on February 22, 2001 at 21:21:11:
Getting insurance for a rehab is expensive and not many companies will write it.It’s similar to what contractors use for new construction.They don’t like when a building is unoccupied.I put regular homeowners and tell them Someone will be moving in within say 30 days.If its an extensive rehab you may want to go for the ones mentioned below.Right before move in I switch to a landlords policy.
Alot depends on your “comfort level”.
Re: Rehabs and Insurance Binders? - Posted by JPiper
Posted by JPiper on February 22, 2001 at 20:38:00:
I agree with Ron below…I would be concerned with just exactly what type of policy you’re talking about here.
Here’s a few scenarios:
You buy a house to rent out. Here you buy a one year policy, and the policy will be refundable…that is, if you sell the house before the year is up you can get a refund of the unused premium.
You buy a rehab. Here you may want a different type of policy, regardless of what the agent may tell you. The reason is that there are different insurance issues. Vacant houses for example aren’t routinely covered by the run of the mill landlord policy. Then there are other issues such as possible theft of materials, tools, etc. These won’t be covered by the landlord type policy either.
Here you could get a 3 month policy from someone like Lloyds of London. They’re expensive…they might be $400 for 3 months, fully earned, meaning that if you cancel early the difference is not refundable.
Or, you could use Zurich for rehabs such as Ron suggests below. I now use this myself thanks to a post Ron made several months ago. Here you will buy a one year policy, fully earned…but the price is less than Lloyds, and more effective for rehabs.
Regardless, you definitely need to focus on the correct policy depending on the specific plan for the property.
JPiper
Re: Rehabs and Insurance Binders? - Posted by SCook85
Posted by SCook85 on February 22, 2001 at 20:28:58:
Carey,
I use State Farm to insure my houses. I get billed monthly. I do not have to pay for a full year. Every time I buy another home, I simply have to call them up, add another home to my policy and it gets added to my monthly bill. I spend on average $30 per month per home.
When I sell a home I just tell them to take it off and it comes off of my next bill.
Steve
Re: Rehabs and Insurance Binders? - Posted by Bob (Md)
Posted by Bob (Md) on February 22, 2001 at 19:51:18:
I believe you’re talking about the insurance escrow they ask for at closing, right? Then, they probably take a monthly amount out for insurance in your PITI payment.
I believe that the year’s insurance escrow is so the mortgage holder can keep paying insurance on the place during the foreclosure process in case you default on the loan. You should get the escrowed amount back at closing when you sell.
Re: Rehabs and Insurance Binders? - Posted by Ron (MD)
Posted by Ron (MD) on February 22, 2001 at 19:50:35:
Carey,
The answers to your questions vary from insurer to insurer. I can only speak for mine, which is the country’s largest homebuilder insurer (Zurich).
My property premium is for one year and there is no refund when I sell before the end of the year. (My liability policy is different. On that one, I don’t get any return premium, but I can substitute a different house in place of the one that sold.)
You mentioned something that concerns me a bit. You said that your policy includes coverage for lost rental income. Most policies do not cover vacant houses. If your agent has given you coverage for occupied, rental properties, you may learn the hard way that you aren’t covered in the event of a claim.
Also, you say that you can opt to pay your premiums quarterly. I am required to pay the full year up front, I suspect because the insurer knows that if I sell the house in six months, I am unlikely to continue to make payments for a property I no longer own.
Check with your agent. He will be able to answer both questions…yours and mine.
Ron Guy
Steve, I asked the insurance guy about adding… - Posted by Carey_PA
Posted by Carey_PA on February 22, 2001 at 21:07:59:
properties to the policy and he said that would be fine, as long as the properties were bought with the same lender or bought for cash. He said that each time I use a different lender for a property that I’d have to get a new policy. Did you run into this with state farm or how did you work it with them?
BTW, I’m using Nationwide because I have my home owners with them and he’s the one that gave me all my rates. Steve, when I talked to state farm (i have my car insurance with them) they said they wouldn’t finance my property until the repairs were made and also that my property was vacant for too long (1 yr) and it would cost more money to insure. Do you have any advice when dealing with state farm or anyone in general?
thanks,
CAREY
Re: Rehabs and Insurance Binders? - Posted by Nate
Posted by Nate on February 22, 2001 at 20:08:36:
That doesn’t sound right. Most mortgage holders insist that the first year’s policy be paid, in full, at closing.
Carey, if it’s any consolation to you, $333/yr sounds just fine to me! Here in the Washington area it would be more like $600-700 minimum!
thanks all for your responses… - Posted by Carey_PA
Posted by Carey_PA on February 22, 2001 at 21:04:23:
Ron and everyone,
When I said that the policy covers loss of rent, it’s NOT covered if i dont’ have a tenant in there, it’s only covered if there is a fire or something that prevents a tenant from living in the property THEN my rents will be paid up to a year until i get the property fixed and rented again.
Ron, could you give me the number to Zurich? I was afraid to ask insurance companies in my area about rehabs, etc. because the first couple of places I called said “no we don’t do insurance for properties like that, you have to fix them before we’d insure them.” SO, when I call Zurich exactly what will I be asking for.
And the property that I mentioned, I most likely will go for the 1yr policy for $333 because I plan on selling it for a year via a lease/purchase and who knows when and if my tenant/buyer will get approved for a mortgage.
Oh and for whoever posted about having to pay 12months at closing…it depends on your lender. My lender that I’m using for this property does NOT require that 12 months be paid up front. I just have to remember to put money aside monthly to pay the quarterly payment.
Thanks again all,
CAREY
Now I’m confused - Posted by Bob (Md)
Posted by Bob (Md) on February 22, 2001 at 20:27:56:
As you can tell, I haven’t bought and sold a whole heap of homes yet…and now I’m confused. It seems to me that if I pay for a year’s worth of coverage UP FRONT, and then pay for it every month on top of that as part of my PITI payment, THEN when I sell, I oughta be getting some bucks back somewhere! Otherwise, the insurance company got paid for an entire year’s coverage that they never had to provide!
What am I missing here?
Oh, by the way… - Posted by Ron (MD)
Posted by Ron (MD) on February 22, 2001 at 21:31:13:
what you probably want is a “builder’s risk” policy. Zurich has one specifically for remodelers and does cover a vacant house being repaired and resold.
In fact, you can cover the building, repairs, and the expected profit. If it burns to the ground, you still have your payday.
Ron Guy
Re: thanks all for your responses… - Posted by Ron (MD)
Posted by Ron (MD) on February 22, 2001 at 21:19:38:
Carey,
Zurich sells its insurance through independent agents. You can’t buy it directly from Zurich, I don’t think.
Contact some independent insurance agents and ask if they represent Zurich.
Ron Guy