JF1250: Do You Have Proper Insurance? With Beth Boisseau-Coots
Beth has an incredible amount of knowledge in insurance and specifically insurance for real estate investors. As the Vice President of Sales at a full service insurance agency, knowing specialty insurance programs for real estate investors is part of her job. This episode will help you understand your insurance needs. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Beth Boisseau-Coots Background:
-Vice President of Sales for J.B. Lloyd & Associates, a full service insurance agency
-Specializes in specialty insurance programs for real estate investors, lenders, mortgage servicers, community banks
-Endorsed by Texas & Western Independent Bankers for Forced Place, Foreclosed Property Liability, Mortgage Impairment, and Outsourced Insurance Tracking.
-Say hi to her at http://www.lloyd-ins.com/ – beth.cootsATusrisk.com
-Based in Dallas, Texas
-Best Ever Book: Think and Grow Rich
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Beth Boisseau Coots. How are you doing, Beth?
Beth Boisseau Coots: I’m great, how are you doing?
Joe Fairless: I am great as well, and nice to have you on the show. Beth is the vice-president of sales for JB Lloyd & Associates, which is a full-service insurance agency. She specializes in specialty insurance programs for real estate investors and banks, lenders, mortgage servicers etc. Today we’re gonna be talking about insurance. She’s based in Dallas, Texas. With that being said, Beth, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Beth Boisseau Coots: Sure, and thank you for having me today, I really appreciate it. My background is really just insurance. I started in sales, in another space, but my father started this business back in 1988, so I was sort of raised into it, and when he saw that I have some ability in the sales area, he said “Okay, well come on, you need to be part of the family business.”
So I’ve been doing this for 12 years and have loved every minute of it, believe it or not. I know people are like “Insurance… It doesn’t sound so exciting”, but this has been a lot of fun.
Joe Fairless: And what about it do you love, real quick? Just curious.
Beth Boisseau Coots: You know, one thing I just absolutely love is the fact that it’s never boring, and there’s always something to learn. My area, my specialty in insurance is always changing; we always have regulations that are always being updated and changed and tweaked by the government that we have to stay on top of… So it’s never boring, there’s always something to learn, something to conquer, and you could spend your whole life doing this and never know it all. That’s the main thing.
Joe Fairless: And then on that note, with your focus – you’re focused on real estate investor policies and working with banks… Is that right?
Beth Boisseau Coots: Yes, that is correct. We started in the banks space, we’ve specialized in community banks since we started in 1988, and then during the financial crisis we started getting more calls from people who were purchasing large pools of distressed assets from lenders, and our [unintelligible [00:04:21].13] that we were working with the banks on was a very good set for these investors as well. So that’s kind of how we stepped into the real estate investor space.
Then as time went on, we’ve adapted our program and our product, we added more carriers, we refined the system on that side of the house to really reflect the needs of the real estate investor… Because they don’t always need all the bells and whistles that the force-placed program offers to the banks. At the same time, there are things they need that the banks don’t need, so we were able to really create a niche for investors.
Joe Fairless: I love that you’re talking about force-placed insurance, because I literally just found out about this term and this policy on the last interview I did, about ten minutes ago, after — I don’t know how many interviews I’ve done; over a thousand, obviously… And the woman on the show talked about force-placed, because she buys distressed notes, so she does that. Now, real quick, what’s a refresher on force-placed? And then let’s talk about some other aspects of insurance.
Beth Boisseau Coots: Okay. So force-placed insurance is an insurance policy that allows a bank, a lender, a mortgage servicer to force coverage on any properties they have in their loan portfolio where the borrower is not compliant with the insurance requirements that are outlined in that mortgage or in the loan.
For example, if you have someone who’s bought a house and they own maybe $100,000 on it, and they’re not keeping up with their insurance, the bank can add insurance to it for what the borrower owes, and have their interest in that property covered.
So the banks need the ability to add properties as necessary, but they also need the ability to delete the properties as necessary. So they don’t want to have an annual term; they may have a property that’s only covered for two weeks, they may have one that’s covered for a year. They need that flexibility, and to accommodate this, we have an online system where they can manage the insurance on the loan portfolio. There’s no more underwriting after the policy is bound, because it’s an after-policy, so they just go online, add properties as necessary, take properties off as necessary, and then they’re billed monthly.
At the same time, if they have a property that they have to foreclose on, then they could go on that online system and just change the status of the property from a force-placed to a foreclosed, and then liability is added. So it’s a convenient way to manage the insurance, all in one place, as needed, with no underwriting delays, no more applications, and then pay as you go… Where the real estate investor’s policy is very similar – it’s the same online reporting, except liability is added (unless we’re told not to) on all properties, because what we find is that the real estate investors usually have a mixed bag, but in almost every case they need the liability, because they have that exposure. So that’s really the key difference between the two.
Joe Fairless: Got it. And certainly for the first example it’s someone who has a high transaction volume, I imagine, whenever they’re trying to oversee their portfolio and things are going in different stages in the process.
Beth Boisseau Coots: Yes. Again, the two policies are very similar, but there are some key differences, one being the liability needs, and another one being the fact that a real estate investor, while they can cover a property or the amount that is owed, and that might be necessary if they are doing an owner-finance situation… A lot of times they’re doing contracts for deeds, or buy and holds, or fix and flips, so a lot of times they’re going to want replacement cost, rather than just to cover what their interest is in the property. So they have that ability – they can do up to replacement cost, or they can just cover it for their interest in the property that they paid for, or what their borrower owes on it.
Joe Fairless: Let’s talk about terms that we should be aware of whenever we’re shopping insurance carriers and we’re evaluating different policy options. Can you educate us on that?
Beth Boisseau Coots: Absolutely, and I’m a big believer that this is something that all insured should know. The first one, that I think is probably the most important one, is know whether your policy is an actual cash value policy or a special policy. Another name for actual cash value policy would be basic, and another name for special would be all risk.
There’s some very important differences between these two types of policies. A basic or actual cash value policy is going to only cover a list of things. It’s only gonna cover what’s listed in the policy. Usually, there are five basic perils, like smoke and explosion, things of that nature, and sometimes they’re endorsed to add a few more, like theft, vandalism, malicious mischief… But you can see that if the only things that are covered are listed on a policy, there’s going to be a lot that’s not covered, and that’s really important to know… Versus a special policy – everything is covered, unless it’s specifically excluded. So you can see that you’re going to have a much, much better coverage with a special form of policy than you would with the actual cash value, and that of course is going to be reflected in the rate. But you need to know it going into the contract and signing the contract, because I hear every day “Oh my gosh, I had no idea that my form of policy was an ACV policy until I had a claim.” So that’s really important.
The second thing is co-insurance – what is co-insurance? Well, co-insurance is the insured paying a portion of a claim; usually it’s an 80/20 split. So if it were an 80/20 split, that means after the deductible, the insured would pay 20% of the claim. So it’s important to know if you have a co-insurance clause in your insurance contract, because obviously that could be a big surprise if you have a claim for a roof, and it’s $20,000 to replace or repair the roof, and you think “Oh, well I just have to pay my $1,000 deductible and I get my roof; then it’s gonna cost me $19,000.” Well, if you have a co-insurance clause, that could really change things in terms of your claim payment.
Joe Fairless: And the comparison between the cash value versus the special policy – on average, how much more percentage-wise is the special policy?
Beth Boisseau Coots: It depends on underwritings. It can be significant, and then there are times when it’s not as significant, just depending on the risks involved. But yes, it is definitely going to be more expensive to get a special policy.
And back to ACV, one thing I needed to mention and I didn’t is that that stands for actual cash value. Basic and actual cash value usually go together. And actual cash value means that when you get your payout, they take the replacement cost, they deduct depreciation and that is your claim. So that’s another very important term to know, is what does that mean, versus replacement cost. You definitely want to know that… If you have that same roof claim and the replacement cost is 20k, but it’s a 30-year-old roof, so they’re gonna take off 30 years of depreciation and you might get a $3,000 plain check. So those are very important terms, the actual cash value, replacement costs, co-insurance.
Joe Fairless: Yeah, it is. Is that the depreciation that you had on your taxes, or depreciation that the insurance company writes up?
Beth Boisseau Coots: They have a formula for depreciation, so it is an insurance company formula that they have. It’s not the taxes. And it’s based on age and quality.
Joe Fairless: What’s another term or something we should pay attention to when we’re evaluating?
Beth Boisseau Coots: Well, obviously deductibles, and homeowner’s insurance – you probably noticed you have a percentage of the value of the house, the value to replace the house, which a deductible is. In my world, a deductible is more like car insurance. My investors get to pick anywhere from $1,000 to $10,000 for their deductible, and that is the amount that you pay when there’s a claim.
If you have a $2,500 deductible, that first $2,500 you pay, and then everything after that is your claim if you don’t have a co-insurance clause. If you have that, then you pay another 20%, or 10%, depending on what your insurance clause is. So the deductible is also very important, and it’s about knowing how much risk that you have the ability or the desire to assume. If you don’t wanna assume much, then you need to choose a lower deductible, you pay a little bit higher rate. If you don’t mind, you have the cash on hand, then you can go higher, and that’s reflected in the rates as well. A deductible is basically how much are you going to self-insure, before the insurance kicks in.
Joe Fairless: What’s a mistake that you see investors make, as it relates to insurance?
Beth Boisseau Coots: Oh, my goodness… The biggest one is not reading the policy and not researching the company – those two, in that order. I’ve had so many that have come to me because they were referred by a friend to so and so, and they find out when there’s a claim that, going back to those terms, they had a basic policy with an actual cash value, this co-insurance, and a high deductible. They think they’re covered, because they are paying every month, but when the pedal hits the metal and there’s a windstorm or a tornado or something, a tree goes through their roof on their house in Kansas, they find out that roof is barely covered, and the amount that they get won’t even fix the whole that has been knocked into it.
So reading the policy – huge. Knowing the carrier – are they A-rated or above by A.M. Best? That’s also really important. We only work with carriers that are A-rated and above, because that shows that they pay their claims, they’re financially solvent, and all that good stuff.
Joe Fairless: What’s the rating system?
Beth Boisseau Coots: It’s called A.M. Best.
Joe Fairless: A.M. Best?
Beth Boisseau Coots: Yes.
Joe Fairless: Okay.
Beth Boisseau Coots: And a quick Google search will get you a lot of results on that.
Joe Fairless: Yeah, I’m already there, I see it. [laughter]
Beth Boisseau Coots: [unintelligible [00:15:21].06] Another term to know is limit; what are the limits? How much liability do you have? Is it a million dollar limit? Is it $500,000? You wanna know what your limits are, and you wanna know that they’re enough to cover you. If you own an apartment complex and you have a pool and a little kid gets in there and God forbid something happens to them, and of course you get sued, what are the limits? You need to know that, so that’s another one of those terms.
Going back to this, another thing that real estate investors should be aware of is that there’s a lot of variance in types of policies. You can go to your local agent and have them do a policy everytime you have a property, and then you’ve got maybe a hundred different renewal dates, a hundred different policies, a hundred different policy fees, and so you kind of manage all this. Or you can do it in an online system like what we have, where it’s all in one place, and you’re paying monthly.
Then there’s other ones that are similar to ours, but you fax in a copy every time you add a property to your agent. So there’s a lot of variance. I think the real estate investor insurance world is so evolving and so growing… So you find just a whole plethora of things in there, and a lot of times agents who may be doing home, auto, a few businesses, throw their hat in this, too. So it’s good to know what you’re getting, and that your agent is able to navigate this, because it is definitely a niche, with its own requirements, its own compliance standards from CFPB, and laws – there are laws and legalities that go along with it as well.
Joe Fairless: Fact or fiction – if I get an umbrella policy that is five million dollars, then that’s better than one million because if something were to happen, then the insurance company would put their better lawyers on it and spend more time because they don’t wanna lose that four million dollar difference?
Beth Boisseau Coots: Well, I would not say you’re gonna have a better coverage or a better time because of lawyers and whatnot; you will be paying more for that, and you will have that extra coverage. So if you need that much coverage, it’s there. So you would be better covered because you would have the coverage. But I would ask you this – why would you need five million?
Joe Fairless: Because of what I just said. If that is true, which you’re saying it may or may not be… So I have people who I look up to in the real estate space, and one of the guys who I look up to, he’s a commercial real estate investor and super successful and he says he’s got five million dollars worth of coverage because if it’s one million, then the insurance company won’t put as much effort towards it, versus if they have a five million dollar liability. And I’m not saying that the insurance company wouldn’t put effort towards a one million, I’m just saying just the difference there – you have more of their attention, so therefore they’re more likely to get behind you in more of a stronger way.
Beth Boisseau Coots: And they may. I have not had that experience personally with the company that I work with. What I have found is that — I guess going back to what my original question is (and I would ask him the same thing if I were his agent), “Why, sir, do you feel that you need that much coverage? Do you own apartments that have swimming pools? I would want to know why, because that is a lot of coverage.” We can go up to that amount, but we don’t very often. Not because we don’t want to or not because we can’t, but because there’s just really not a need; that’s an excessive amount of coverage in many cases, but not to say that it’s not needed. If it’s needed, then that’s what’s needed.
I have one client who is a physician, and he’s a very wealthy physician, and he actually does have five million. We didn’t have to get it through an umbrella, we were able to get it on his regular policy, but he feels like he needs it simply because he has deep pockets and he is afraid that he might be sued because of those deep pockets, which is understandable. But in most cases, I would say that five million is excessive; it’s excessive even for banks. My banks don’t even typically carry that much liability.
Joe Fairless: Wow, that’s interesting.
Beth Boisseau Coots: In fact, I only have one bank that carries that limit, and it’s not even on the liability, it’s on the property side, and it’s because they do a lot of commercial lending. So I have not had the experience that he describes, but I would say if someone asked me for that – and when they have – I have stated what I have just stated to you, and that is “Why would you need that much coverage?” Because I’ll do it, and I don’t mind doing it, but let’s talk through this to see if it’s really necessary, since you’re gonna be paying for it.
Joe Fairless: It might have to do something with the meth labs that he has on his properties. [laughter] I’m kidding. So Beth, what is your best advice ever for real estate investors as it relates to your area of expertise?
Beth Boisseau Coots: My best advice ever – quality over price; shop the coverage first, carrier second, and lead the policy. Those are my three main things. Know what your coverage is. I know it’s boring, but do it. And ask questions. I love it when my clients ask me questions.
Joe Fairless: I’d say read the policy, but then have your attorney read the policy. I just got done getting a bunch of insurance for myself and my wife, and just making sure we’re covered in case something crazy comes after us, and I read it – great, but I had my attorney read it and then he went back and forth with my agent through me to get all the questions answered, because it’s one thing for me to read it and to get it interpreted by the agent, but then also have the attorney from a legal standpoint make sure that everything’s in there that needs to be in there.
Beth Boisseau Coots: That is excellent advice because it is a legal contract, but not everybody has access to an attorney or the funds for the attorney, and if they don’t, at least be familiar with what you’re getting. But yes, if you have access to legal, by all means, I think that’s even better.
We have all the time our banks and some of our larger investors – they have to do their due diligence on us, so we have that same thing going back and forth, sending a form, showing who we are, so that they know who they’re dealing with.
Joe Fairless: We’re gonna do a lightning round and then we’ll wrap up. Are you ready for the Best Ever Lightning Round?
Beth Boisseau Coots: Sure.
Joe Fairless: Alright, first a quick word from our Best Ever partners.
Joe Fairless: Beth, what’s the best ever book you’ve read?
Beth Boisseau Coots: Think and Grow Rich, by Napoleon Hill.
Joe Fairless: Best ever policy that you have sold?
Beth Boisseau Coots: Oh, my goodness. I can’t name names, but I have one amazing client; his initials are A. A., and his policy was the best, and he is the best client.
Joe Fairless: Is that Mr. American Airlines?
Beth Boisseau Coots: [laughs] No. I believe they’re self-insured.
Joe Fairless: What is the best ever way you like to give back?
Beth Boisseau Coots: I teach Sunday School, I volunteer with the church choir, I am a board member of my children’s PTA, I am a board member at my daughter’s American Revolution chapter… I love to serve, because it’s an honor and a privilege, so I give back however I can.
Joe Fairless: And how can the Best Ever listeners get in touch with you or learn more about your company?
Beth Boisseau Coots: Well, my direct number is 972 342 4280, and my e-mail is email@example.com, and we have a website, www.lloyd-ins.com, and then I’m on Facebook and LinkedIn as well. You can call, text, e-mail, yell really loud, I’ll probably hear you, especially if you’re somewhere in Dallas… And I’d love to hear from you. Anytime anybody has any questions, I’m always happy to do policy reviews and things of that nature.
Joe Fairless: Beth, thank you for being on the show, thanks for talking about the different types of insurance and then the different terms of insurance that we need to pay attention to, from actual cash value (ACV), otherwise known as basic, compared to the special policy (all risk), and the pros and cons for each – basic is gonna be cheaper, special will cover everything unless it’s specifically excluded, whereas basic only covers a list of things, and maybe some additional ones if they’re added.
Also, the co-insurance, where the insured is paying a portion of the claim, so always look to see if you have co-insurance in contract. Make sure we know what the deductible is – there’s a balance there, risk versus ability to pay or to assume certain risk, and the limits for how much liability we actually have. Make sure we read through the policy. Shop around first, as you said, and then second, make sure we do research on the carrier, and third, read through the policy, and my recommendation, as we discussed, is also to get that attorney to read through it, too.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Beth Boisseau Coots: Take care.