Multi-Family Housing and Apartments Insurance Guide

Written By Charlotte Insurance on March 14, 2022. It has 0 comments.

A Guide for Insurance for Multi-Family Housing and Apartments

Own a property you want to develop for multi-family housing? Thinking of investing in rental property as a business opportunity?

The market might be hot, and this may be an excellent business venture for your financial future. But if you don’t have the right kind and amount of insurance, you could lose everything in one accident.

Here’s everything you need to know about insurance for multi-family housing and apartment buildings.

Who Needs Insurance for Multi-Family Housing or Apartments?

If your rental property houses more than one tenant or family, you likely need multi-family housing or apartment insurance coverage. That could be one property divided into multiple rentals or multiple buildings on a single property.

Types of buildings typically insured as multi-family housing include:

  • Duplex
  • Triplex
  • Fourplex
  • Apartment buildings
  • Villas, townhomes, condos that share a wall
  • Homes with separate upstairs and downstairs apartments

When in doubt, talk to your independent insurance agent about the property you’re renting to know which coverage is best for you. Even if you only have one tenant in a single property, you need landlord insurance, even if it’s not multi-family housing coverage.

What Insurance Coverage Do I Need for Multi-Family Housing and Apartments?

The more coverage you purchase for your property, the better protected you will be. Your rental property is both an investment and a business, and the insurance policies you carry need to reflect that.

Here are the types of insurance policies you’ll need to consider:

General Liability

The bare minimum insurance coverage you need is a general liability policy. This protects you when a third-party – tenant, vendor, guest – gets hurt or suffers property damage while located on your rental property. This might be someone who slipped on an icy pathway or someone who suffered property damage when a tree limb falls on their vehicle.

If the injured party can claim that lack of maintenance or upkeep lead to the accident, you can be found liable. General liability pays the medical expenses, property damage, and legal settlements and fees from these accidents.

Property Insurance

The second bare minimum protection you need for multi-family housing or apartment buildings is property insurance. This covers the cost (up to your policy limits) for damage to the structure, roof, built-in components, and even furniture or appliances you own within the rental. You can also include some outbuildings like sheds or free-standing garages.

You can customize your property insurance coverage per building if you have multiple buildings located at the same property. This allows you to designate separate forms of coverage, policy limits, and deductibles per building. Doing this gives you more flexibility to provide necessary insurance for a building’s needs instead of trying to purchase a single policy with a single limit.

Loss of Use Insurance

Loss of use coverage is often known as business income insurance because it pays you when a covered claim reduces your rental income. You may not be able to rent out an apartment or townhome while repairs are being made.

Loss of use insurance can also help tenants. With this coverage, you can help pay their housing expenses if they need to relocate while the property is repaired. Limits will apply to this coverage, but in general, they will be covered until the property is repaired and inhabitable again.

Flood Insurance

Property insurance doesn’t include flood coverage, and anywhere it can rain, it can flood. From flash floods after a big rainstorm to overflowing banks of a river or lake, all property owners need this coverage. You can purchase flood insurance through the National Flood Insurance Program (NFIP) or through private insurers.

If you’re located in a low-risk flood zone, your premiums will be extremely affordable. Your lender may require flood insurance if you’re in a high-risk zone. Either way, you’ll be covered if rushing and standing water cause damage.

Garage Keepers Insurance

Not every landlord will need garage keepers coverage but some might. And if you have a parking lot for tenants to use, you’ll need to talk to your independent insurance agent about it.

Garage keepers insurance covers you when you “store or house” vehicles on your property, i.e. allow them to park. In most cases, for multi-family housing and apartments, you’ll need this coverage only if you have “committed” to the safety of your tenants’ vehicles. This can be done by hiring a parking attendant, providing security measures in your parking lots, or implying responsibility for the safety of the vehicles in any way.

Garage keepers insurance helps cover the losses if vehicles are damaged or stolen in a covered peril. It’s a form of liability coverage that replaces lost vehicles or repairs damaged ones and covers you if someone decides to sue.

Sewer Backup Insurance

Sewer backup is often thought of as a homeowners issue, but landlords need to consider it as well. In general, sewer backups will be covered from where the city or county line ends up to the dwelling. It can help pay for repairs to the sewer line and damage to the property caused by the backup.

If the backup is deemed to be caused by lack of maintenance and upkeep, the claim will likely be denied. Make sure you’re taking measures to educate your tenants about what can and can’t be flushed or rinsed down drains. You’ll also need to make sure to have sewage lines cleaned every couple of years as well as make sure trees (and their root systems) aren’t too close.

Commercial Auto Insurance

Do you have property managers or maintenance people on staff who drive to different property locations? Are you driving to different properties on a regular basis? Even if you’re driving personal vehicles, you need to consider a commercial auto insurance policy.

Personal auto insurance doesn’t cover accident claims that arise when driving for business purposes. And the more you or your employees travel between locations, the higher the risk of an accident. Commercial auto insurance covers you much like personal policies but with higher liability limits, which you’ll need if the other driver decides to sue.

Professional Liability Insurance

Also known as errors & omissions (E&O) insurance, professional liability insurance is coverage designed for you or your property manager. When the work you do requires that you use your knowledge to provide a service or give advice, there’s always a chance you’ll make a mistake.

These mistakes, whether a momentary lapse or a misunderstanding of the facts, can lead to expensive lawsuits. Professional liability insurance covers you, up to your policy limits, and helps pay legal fees.

Cyber Insurance

When you rent to multiple tenants, you have to collect a lot of personal information. You likely also make rent payments easy by offering an online component. Maybe you even have a website that allows potential tenants to submit their applications. All of this is data that’s at risk of being hacked and stolen.

Cybercriminals don’t just go after the biggest companies. They’re also happy to target smaller businesses because they assume the data isn’t well protected (and they’re usually right). When a data breach happens, you’re liable for costs – credit monitoring, notifying everyone impacted, paying to fix the security issues, and rebuilding your reputation. Cybercrime liability covers you, your business, and your tenants.

Workers’ Compensation Insurance

If you’re the landlord, property manager, and maintenance person all in one and don’t have any employees, you won’t need to worry about workers’ compensation insurance. But once you start hiring people to do those jobs for you, you definitely need it.

Workers’ comp is required by state law, but it also makes good business sense. It pays for the medical expenses and lost income when an employee is hurt or becomes ill while on the job. If an employee dies, workers’ compensation pays death benefits to the family. And if your employee (or their family) decides to sue, it covers your legal fees and any settlements.

Employment Practices Liability

Once you start hiring employees, you may want to consider adding employment practices liability coverage. This protects you and your business if an employee (current or former) accuses you have discrimination or harassment.

Even if you think your employees would never make those kinds of claims, it’s better to be safe than sorry. It only takes one big lawsuit to jeopardize your business.

Umbrella Liability Coverage

You’ve probably noticed that a lot of the recommended insurance coverage for your multi-family housing or apartment buildings involves liability. That’s because you’re responsible for a lot as a landlord, business owner, and someone who works with people.

Each form of liability insurance you purchase will have its own policy limit. But what happens when a lawsuit or an accident exceeds your policy? Without umbrella insurance, you have to pay the difference out-of-pocket. With umbrella insurance, you have an extra cushion of liability protection to help payout those larger than life claims.

 

How Much Will Multi-Family Housing Insurance Cost?

The cost to insure your rental property or apartment building depends on a variety of factors. Those factors break down into two main categories starting with the property.

Property factors that impact insurance prices include:

  • Type of construction for each building
  • Age of property structures
  • Number and type of dwellings
  • Age and type of wiring
  • Plumbing
  • Heating type: central, window units, floor vents
  • Firewalls and fire prevention (smoke and CO detectors)
  • Exterior maintenance

Prevention, maintenance, and upkeep of the properties will help ensure that claims are not denied. It will also help reduce claims filed in the first place.

Other factors that affect the cost of your insurance coverage include:

  • Types of policies you purchase
  • Deductibles and policy limits
  • How many employees you have
  • How many buildings and tenants you have
  • Personal credit score
  • Length of time in business

Work with an independent insurance agency like ours who can advise you on the best forms of coverage for your business. We can also provide quotes from multiple insurers so you know you’re getting the best price.

Is Multi-Family or Apartment Insurance Required?

You’re not legally required to carry certain property or liability insurance coverage when you own apartments or multi-family housing. The only legal requirement you may have is for workers’ compensation insurance once you hire employees. This requirement kicks in once you hire a specific number of employees, and it differs from state to state:

  • In North Carolina: 3 or more employees
  • In South Carolina: 4 or more employees

If your properties are financed through a lender, they will likely require you to purchase certain insurance coverage for the life of the loan:

  • General liability
  • Property damage
  • Loss of income/use
  • Flood insurance (based on the property’s flood zone location)

But even when insurance isn’t required, carrying as much coverage as you can afford is a sound business decision. Your buildings are both an investment and a liability. The right insurance policy protects you and your business.

 

What About Insurance For Tenants?

Multi-family housing and apartment building insurance protect the property and your liability as the property owner. Some compensation may be available for your tenants – such as the loss of use coverage for a renter while the property is uninhabitable – but the policies you purchase don’t cover renters.

Renters can purchase renters insurance to cover their personal belongings and their own liability. As a landlord or property manager, you can require tenants to carry renters insurance in the lease agreement. If you make this a requirement of renting, it must be applied equally to all tenants.

 

What If I Live on the Property?

You may be able to purchase homeowners insurance to cover the dwelling if you also live in the property you own and have tenants. This is most common in duplexes or single-family homes that take on a tenant. If you own multiple villas, condos, or townhomes or large apartment buildings, a homeowners policy won’t work for you.

Talk to your independent insurance agent to figure out the best option for your unique situation.

 

In Conclusion

Whether you’re investing in real estate as a business venture or you’re trying to make a little money from your own home, you’re a landlord and a business owner now. Insurance is a necessary part of life and business.

Multi-family housing and apartment building insurance covers you from all kinds of disasters, both those you can predict and those you can’t.

Talk to one of our agents today to find out what specific coverage would work best for you.

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