Insurance for Multi-Family Properties

Real estate investors are always hunting for their next investment property, but as I network with many landlords, I often hear that their main goal is to acquire multi-family buildings. As I am not a full-time real estate investor myself, enough so to explain the reason why investors should want to get into the multi-family market, I am an insurance industry expert and I can provide expert level information regarding the available insurance options for such properties.

Let’s get started with how insurance defines multi-family buildings. Whether it is a duplex or a large apartment complex, insurance would classify the risk as a multifamily property. In other words, if there are more than one family living in the property with each unit having different entrances, bedrooms, kitchen and bathroom, it is a multifamily property for the insurance carrier.

Depending on the carrier and the number of units under the same structure, some multi-family properties have the option to be insured as a personal or commercial policy. In general, duplexes, triplexes, and four-plexes could be insured as a personal policy with the personal name of the insured or the entity. However, in my experience insuring many investors in Colorado, I always like to compare coverage and premium between the personal and commercial policies for my clients and give them the option to choose.

Commercial policies are designed to cover more than four-unit structures to large apartment complexes and townhouses. These policies would include more built-in coverage than the average personal policy. A few insurance carriers are flexible and include duplexes and triplexes in a commercial policy. However, the carrier’s underwriter may ask for additional requirements to make them eligible for submission.

Carriers for commercial multifamily policies would have some underwriting concerns regarding the building and its safety for the tenants. Some of the information investors would be asked are:
• Age of the building
• When was the wiring, plumbing, heating and roof last updated or inspected?
• Are there any security cameras?
• Are there smoke detectors, sprinkler systems, and fire extinguishers?

It is important to be transparent about condition and updates to the building with your agent to avoid any changes to the policy after the carrier completes the inspection.

Coverage for multifamily properties is not only a priority for the land-lord, but also for the lenders. During the loan applications, lenders are requiring the building(s) to be insured with the following endorsement:
• Replacement Cost value
• Loss of Rents with a minimum of twelve months of rents
• Liability coverage for one million dollars minimum per occurrence

In addition, since the recent condominium collapse in Florida, more lenders are requiring adequate Building Ordinance coverage for codes updates and debris removal for larger properties. The deductibles for multifamily commercial policies are usually higher for wind and hail in Colorado. The two types of deductibles for wind and hail losses are:
• Percentage deductible which is based on the building amount.
• Flat deductible.

Overall, whether your multifamily investment is insured with a personal or commercial policy, it is important to know your options. Insurance policies should be customized to fit the property’s conditions, occupancy, and the investor’s preferences. If there are any questions regarding multifamily insurance, you could contact your agent, or you could reach me for additional information.