Are your lender’s insurance requirements reasonable? If not, is it costing you more in insurance premiums and is there anything you can do about it?
If you are financing your property, one of the requirements for lender approval will be that you have adequate insurance coverage in place. Your lender will insist that you have certain limits and coverages. Many borrowers will assume these lender-imposed requirements are all needed – and all they need – to secure their property.
However, borrowers beware. A bank is a financial institution looking to protect its own interest, not yours. Banks sometimes use a generic checklist that may or may not be relevant for your specific property. It’s up to you to make sure you’re not paying for coverage that isn’t relevant.
Some examples of coverages your lender might require that may not be relevant to all borrowers:
- Equipment breakdown
- Contents coverage
- Auto liability
- Workers compensation
- Liquor liability
- Crime liability
Often all you would need to do is sign a waiver attesting to the fact that circumstances are such that the coverage is not relevant. (i.e. with regards to contents coverage – no building contents owned by the borrower entity).
Another area to consider is that building limits required by a lender may be well beyond what the need calls for. Depending on how inflated the limits are, the resultant increased premiums can frequently be quite a bit more costly than necessary.
It’s not always easy to negotiate with your lender. Lenders can be rigid and you may be forced to go along with their requirements. Many lenders utilize insurance consultants to advise them on what they should require of their borrowers. Insurance consultants may be easier to negotiate with since they have an understanding of insurance.
As a borrower, you may not be in a position to determine appropriate coverage or limits, but if you notice a lender requirement that does not seem right, discuss it with your insurance broker. If warranted, your insurance broker can and should question the lender on their requirements when they veer from what is reasonable and necessary. They can often negotiate with the lender or the lender’s insurance consultant to make sure the coverage and limits they require are reasonable and necessary.
Questions and comments are welcome. Please either leave them in the comments section below or contact me directly.
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