For many landlords, especially first timers, the cost to insure their building may seem mysterious. Why are the costs so different from their homeowner’s policy? Why is the rate so different from the seemingly identical building next door?
And, most importantly, what is a good price? What should landlord insurance cost?
One size doesn’t fit all
“What should landlord insurance cost?” is similar to asking, “What should a car cost?” Shopping for a used Toyota Corolla is very different from looking at a new S-class Mercedes Benz.
Similarly, a five-story building in the Bronx will cost much less to insure than a Brooklyn brownstone steps away from Prospect Park. But even similar buildings on the same block can have very different insurance needs and costs.
Factors that affect pricing
Insurance companies consider several factors when pricing insurance. Here are the major ones:
- Premiums for similar policies can vary widely by company. Some companies, for example, specialize in different types of homes, such as waterfront or historic properties. Insurers also may offer aggressive pricing in certain areas to gain market share. Insurance firms can also raise prices to discourage certain types of properties.
- The amount and scope of coverage is a major factor when it comes to premiums. So are riders and other add-ons, such as loss of rental income, flood or earthquake coverage, and other options.
- Location, age and type of building greatly affect landlord insurance premiums. Because premiums are partially based on the cost to rebuild a property, construction and materials are a big factor. A historic property with exotic materials or intricate woodwork will be expensive to rebuild.
- From an insurer’s point of view, an apartment building with retail space on the first floor carries different risks than an identical building without retail space.
Two notes on insurance cost:
- Insurance is designed to protect against financial catastrophe. A building owner with substantial assets to protect should strongly consider additional liability coverage and/or an umbrella policy. A landlord who depends on monthly rental income should have a rider that protects against lost rental income.
- Many insurers look at a landlord’s credit rating when deciding whether to offer a policy at all and when setting premiums. A lower credit rating can mean higher premiums.
The easiest way to do insurance due diligence
Getting multiple bids is considered standard procedure for construction and maintenance projects. The same is true for getting the right insurance coverage at the best price. The quickest and easiest way to do that is to consult an insurance broker who knows the area and the companies where your building is located. A broker who regularly works with multiple companies can be an invaluable resource.