Multifamily Insurance: Understanding Issues, Undertakings and Coverage

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Multifamily rental properties just like any other commercial property, involve a risk of damage to the property, and therefore, calls for a comprehensive insurance cover. Having an insurance in place can help property owners cover their restoration cost against storm damage or daily wear and tear. Being a multifamily property investor, it is important for you to have an idea of various types of insurance policies available against your type of property. Carrying the discussion further, this post discusses various safety issues related to multifamily housing properties, insurance undertakings, and coverage.

How is Multifamily Insurance Defined

Insurance companies view all residential dwellings larger than a single-family home as multifamily. Any residential property that can house more than one family, and has amenities such as multiple bathrooms, bedrooms, and kitchens, separated by a wall, qualifies as multifamily to the insurer. Duplex, triplex and often, four-plex housing properties are insured with personal-lines insurance. Whereas, commercial-lines insurance covers four-plex or larger multifamily dwellings such as townhomes, apartments, and condominiums.

Building-Safety issues

Multifamily-insurance companies have several underwriting concerns that a property must meet before it is insured. Typically, insures need to insure that the property is safe to inhabit and is up to date structural standards. Factors that insurers seek information about include: 

• Age and type of wiring
• Plumbing
• Heating (whether the property has central heating, floor vents, or window units)
• Type of construction
• Firewalls

Buildings that are more than 40 years old, raise additional concerns such as those for asbestos and lead-based paints. Additionally, apartment buildings have specific liability exposures, such as smoke detectors, fire extinguishers, and sprinklers, which have to be maintained in top condition on a regular basis, or the insurers will nullify the coverage.

Underwriting 

Multifamily properties have specific underwriting requirements that take significant time for the agent to complete the quoting process. Before  purchasing a multifamily dwelling, you must find out beforehand, if the insurance company you do business with, will consider insuring the property. The process of notifying the insurance agent, to getting a quote and an insurance binder, usually takes three days.

Coverage

Lenders generally prefer that multifamily properties should have replacement-cost coverage,  liability coverage, and loss-of-rent coverage. This implies that the insurance company will need an explanation from clients about the rent amount charged for each unit, and the duration of coverage required in months, usually at least six months in rent-loss coverage. Often insurance agents suggest borrowers to obtain 12 months in rent-loss coverage. Liability coverage under a commercial insurance policy can either be set up as a package deal or as an individual policy. Property-owners generally start with $1 million as liability coverage.

Wrapping Up

Multifamily rental properties present significant financial exposure to insurance companies. It is, therefore, beneficial for multifamily property owners to ask for details about how insurer would assess the property at the time of need. Last  but not the least,  give insurers sufficient time for the claim support, as reviewing your claim may take somewhere around one to two days.