Fallen tree and tarped roof.

Don’t Make These 7 Mitigation Mistakes

By BreAnn Stephenson

Even if you or your property manager have a perfect attendance record for scheduled maintenance visits and take steps to prevent avoidable losses at your property, it is still possible to run into an accident or some bad luck. When something unfortunate happens to your well-tended investment, you can either spring into action to mitigate your losses or stumble into a series of mistakes that take your situation from bad to worse. The timely discovery and reporting of damage at your property can keep repair costs in check and preserve valuable insurance coverage. Learn how you can sidestep these seven common mitigation mistakes…

Mitigation Mistake #1: Not performing regular inspections.

We started with the assumption that you are performing regular inspections – you are, aren’t you? Not being present at your property opens your investment up to a whole host of risks from theft and vandalism to a total fire loss. Lack of monitoring is a common thread we see woven through many losses.

To minimize potential losses:

Establish a schedule for both walkthrough and drive-by inspections. If you have hired a property manager for this task, make sure they give you a regular status report for your property and address any items of concern timely. Having a list (and budget) for pre-authorized repairs can help your PM act swiftly on your behalf should there be an emergency. Don’t let procedures get in the way of addressing a water leak or other damage that can be minimized if acted upon immediately. Remember that vacant properties will need more frequent checks. Also take a little time to establish and nurture a relationship with neighbors as they can be a great asset when you or your PM can’t be there.

Related reading: Timely Inspections Can Keep You from Losing Insurance Coverage

Mitigation Mistake #2: Not educating yourself about your specific insurance coverages.

We know that reviewing your insurance contract (yes, your policy is a contract) can make for a dry read. However, becoming familiar with your coverages can help you avoid increased frustration during a time that is already stressful. Plus, I’ll bet that you’d agree that anytime you sign a contract, you should know what you are agreeing to. If you don’t, you may even negate valuable coverage that you may have otherwise had.

To minimize potential losses:

Take the time to read, or at the very least, scan, your insurance policies. If you take the Cliff Notes approach, however, just remember that the intricacies of coverage lie in the details. Insurance can be a complex product, but it is no more complex than other areas in real estate investing. You can grow in your knowledge and understanding of this one if you simply put the time in. The other good news is that you have an expert – your insurance agent – who can help you through any confusion. He or she should be happy to answer any coverage questions you have.

Mitigation Mistake #3: Not calling the proper authorities (Police/Fire Department).

Simply put, if you don’t involve the proper authorities when your property is damaged, you could be putting your own safety, or the safety of others in danger. You don’t want to put yourself or someone else face-to-face with a thief or enter a building that may collapse. Furthermore, if you are going to involve your insurance company in a loss, they will need to have reports from the police or fire department to adjust certain types of losses like theft, vandalism or a fire.

To minimize potential losses:

If you or your property manager sense that a crime has been committed or feel unsafe entering the property, call the police to have them investigate and write up a police report. The fire department will typically be involved in putting out your house fire, but beyond that, most insurers will want a Cause and Origin report which details the ignition source of the fire and in what area of the home the fire began. These reports are a normal part of the claims investigation process that help your insurer get a clearer picture of how any damage was caused. Most importantly, involving the proper authorities can help keep you and others from getting injured while examining the damage.

Mitigation Mistake #4: Not taking steps to secure your property if you discover damage.

Taking steps to secure the property after it has been damaged is a listed responsibility of the insured in any standard property policy. If you don’t secure your property as soon as you can, you are opening yourself to the possibility for additional losses to occur and the increased expenses that accompany those losses. If your property is damaged again before it is secured, adjusting multiple losses simultaneously can become much more difficult for your insurer – and you. Worst of all, your insurer may deny your claim if you don’t follow the provisions of the policy.

To minimize potential losses:

When safe to do so (you may need to wait until the police, fire or other authorities advise it’s ok to enter the property or area), assess what will be needed to protect your property – and act! Do you have roof damage? Get that tarp in place STAT. Broken entry door or windows from a theft? Get them boarded and secured so that no one else is tempted to come get any of the first thief’s left-overs. Have a pipe burst? Get your property dried out ASAP so mold doesn’t grow.

You may even need to do some temporary repairs to remedy an unsafe condition. If so, take photos or video before you do anything and retain any damaged materials, so the insurance adjuster can examine them. Without proof of damage, it may be challenging to pay you for a covered loss that you suffered. Keep receipts of any materials purchased for temporary repairs so they can be considered for reimbursement in the claims settlement process.

Related reading: Is It Covered? – Your Responsibilities as an Insured

Mitigation Mistake #5: Not reporting damage to your insurance company as soon as you are able.

If you’ve watched any crime shows, they often talk about how important it is to begin investigating immediately after a crime has taken place. Those first 24-48 hours are critical, right? In the same way, if you don’t report damage to your insurer in a timely manner, important details may become lost or obscured, and not reporting a loss according to the time frame set forth in your policy may even lock you out of coverage altogether.

To minimize potential losses:

Number one, don’t wait to report damage to your insurance company. You may not have all the details of the loss immediately, but that is ok. It is better to put your insurer on notice and have them help you through the process than to wait and potentially negate coverage that you might have otherwise had. Reporting an incident timely will help them accurately adjust the loss too. Lastly, it makes the claims process work more efficiently, enabling you to make repairs and get your property back to producing income.

Mitigation Mistake #6: Giving away your insurance rights to third parties.

Unfortunately, there are a lot of literal and figurative “storm chasers” out there. Though not every opportunist is a bad apple, giving your insurance rights up to a third party like a public adjuster or through an assignment of benefits contract can come with an element of risk. Work with the wrong party, and they could end up taking your insurance payout and leaving you with an unrepaired property.

To minimize potential losses:

Don’t sign anything without first contacting your insurer. Involving a third party can complicate the claims process or may even render you unable to talk with your insurer about the loss. With an assignment of benefits contract, you transfer your rights as the insured over to the third party. After this is done, your insurance company is no longer able to work with you to settle the loss as legally, you are no longer their insured. Public adjusters may also be helpful advocates, but your agent should already be there to help you work through the claims process so take advantage of the resources the insurance company offers before seeking outside assistance.

Related reading: How Fraud Affects Your REI Business

Mitigation Mistake #7: Not working cooperatively with your insurance carrier during a claim.

Though it is fine to work through any disagreements you may have, not working cooperatively with your insurance company really only hurts you in the process. If they don’t get the information they need from you, it will make it harder for them to settle your loss accurately or timely. You may end up with a smaller settlement or the process can drag on longer than necessary, costing you valuable time in getting your property back to producing income.

To minimize potential losses:

If your insurer requests information, get it to them in as timely of a manner as possible. They will understand that it takes time to get a police or fire report, but just keep them in the loop when they ask for any progress made. If they need to inspect your property, be as accommodating as you can about setting up times to make this happen. Being flexible with your schedule will help them settle your loss more efficiently, getting you back to business more quickly. Keep receipts of any repairs made and give them access to any records they request access to. If there is something they want from you, it is because they are trying to settle your loss accurately. Lastly, be honest and follow the Golden Rule. Most often, the energy we put out, is what we get back which I’m sure you have experienced in many areas of business.

Being Prepared to Respond

While our first time doing anything new isn’t perfectly smooth, having a plan and the right mitigation materials at hand is so important for making a bad situation easier to handle. Take some time to ask yourself, am I truly prepared if I were to have a loss at my property? Do I know who I would call first, second or third? Do I have board-up materials, a tarp, etc. on hand to help secure my property if I have damage? Will I go out there personally? How quickly can my property manager respond if something goes wrong? If an emergency occurs, who will be the first one on scene and how equipped are they to handle whatever they find? You will likely need to take some concentrated time to develop your disaster plan, but it should help your ability to respond more calmly when the unexpected does occur. And peace of mind during a crisis is invaluable.

Do you have a mitigation plan in place? Materials on hand for when a disaster strikes? Share with us your strategies for minimizing damage at your properties in the comments section below!

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