People call our office all the time, wondering why multi-family building insurance is so much higher than homeowners’ insurance. Sometimes they’re even wondering why an insurance company declined to make them an offer.
To qualify for the best insurance rates (and policies), look at your building the way an insurance company would. Insurance is about factoring risk and potential damages. How does your multi-family building look in those two areas?
Building age is a big factor for several reasons. Things like old wiring or outdated furnaces are obvious, but the insurance company also worries about risk factors like asbestos and lead-based paint.
- What shape is the plumbing in?
- What are the firewall ratings?
- If a fire breaks out in one apartment, can it be stopped without damaging others?
Check out these things in advance, and you’ll be better equipped for negotiations when that time comes.
When you buy a new policy or renew an existing one, the insurance company will evaluate the building’s condition to set premium rates. Doing your own inspection in advance, and fixing what can be fixed, will save you big.
Some of the things to look for include the following:
- Smoke alarms, fire extinguishers and fire escapes
- Good working stairs (and railings)
- Prominent exit signs, well-labeled circuit breaker boxes
- Uncluttered basements, especially near furnaces
- Well-lit hallways and public areas
Insurance Underwriting Requirements
Because multi-family properties are more complex and carry more risk than single-family homes, the underwriting requirements are also greater. In other words, it takes longer to put together the application and binder, so you don’t want to wait until the last minute to purchase or renew your policy.
Another thing to keep in mind is the fact that some insurance agents and carriers don’t insure multi-family properties, which can make the shopping process tricky.
One way to avoid both issues is to work with an insurance broker that specializes in multi-family real estate. Such a partner will know all the available carriers and programs in your market. He or she can also recommend the right fit for your needs, saving you time and hassle, as well as money.
And brokers who are also licensed agents can bind a policy quickly—in case you need insurance for an immediate closing.
Insurance Coverage Requirements
Finally, remember that, just as you don’t want prospective tenants to evaluate your property purely on price, buying insurance on price alone can be a bad idea. “Similar” policies can be more like apples and oranges and bowling balls in terms of comparison. What are you really getting for your money?
Lenders generally require that multi-family properties be insured for the loan amount. While this protects their investment, it doesn’t necessarily cover yours. Make sure you base your policy limits on replacement cost coverage.
Multi-family properties should also carry loss-of-rent coverage. This protects landlords against loss of rental income, in case a covered peril renders one or more units uninhabitable.
Other considerations include the following:
- What is the financial rating of the company backing up the policy?
- What do the policies actually cover?
- Do your property and needs match the insurance carrier’s product and service?