The Essential Guide to Multifamily Insurance for Real Estate Investors

Multifamily real estate investing requires significant initial capital and recurring operating expenses. Thus, it’s crucially important to protect your investment in the most appropriate possible way; otherwise, you risk incurring major financial losses. And the way to do that is through multifamily insurance.

In this article, we’ll explain what this type of coverage is, when it is used, what it covers, who the best providers are, what affects the cost, how to choose the right policy, and how to file a claim.

Key Takeaways

• Multifamily rental properties need to be properly insured, just like all other types of investment properties.
• Multifamily insurance is a type of coverage that protects multi unit rentals and their owners against loss, damage, liability, and lost rental income.
• The level of required coverage and the associated cost depend on multiple factors.
• Steadily is one of the best companies for multifamily landlords.

Understanding Multifamily Insurance: A Primer for Real Estate Investors

First, investors need to understand the concept behind multifamily property insurance and its importance when investing in multifamily real estate rentals.

What Is Multifamily Insurance?

Multifamily insurance is a type of real estate insurance that is specifically designed to cover the needs of rental properties with multiple units. These can include duplexes, triplexes, quadruplexes, apartment complexes, townhome buildings, and others.

Some companies offer a different type of insurance for these property types – like duplex insurance, apartment insurance, condo insurance, etc., while others group them into a single type of policy.

Why Is Multifamily Insurance Essential for Your Investment Portfolio?

Multifamily rental property insurance is not legally required in the US housing market. However, it is a must for all investors who want to have a well-protected real estate investment portfolio.

At first look, insurance appears at the expenses side of rental property analysis. You have to pay a monthly or annual premium, which can easily add up to a few thousand dollars per year for a multifamily rental property.

On the other hand, proper investment property insurance provides real estate investment protection that is absolutely needed.

Imagine that you rent out an apartment building and one of the apartment units catches on fire because of tenant negligence while cooking. If the fire spreads throughout the building, you can end up with hundreds of thousands of dollars in losses and damages.

If you have the right type of insurance for multifamily properties, the insurer will pay for the entire cost of the necessary fixes and repairs, except for a small deductible that you need to pay out of pocket. This will help you keep your business positive cash flow and profitable.

The Role of Multifamily Insurance in Risk Management

Since multifamily buildings insurance incurs its own costs but helps you save money when a covered event occurs, it needs to be considered carefully in the risk assessment and risk management plan of your rental property business.

The right policy helps minimize the risk associated with renting out multifamily homes. At the same time, it costs money to have your rental property insured. Thus, when choosing the right multifamily landlord insurance policy, it’s important to strike the right balance between risk protection and cost. We’ll get back to this in a bit.

Special Considerations for Multifamily Insurance

There are numerous factors that you need to take into account when getting multifamily property insurance.

Some of the most important considerations include:

• Your market and the degree of risk associated with it: For example, Florida landlord insurance needs to be comprehensive due to the frequent natural disasters there.
• Your property type and size: When insuring condo buildings, you need to take care of the multiple amenities, while there are only a few – if any – amenities to worry about with apartment complexes.
• Number and type of tenants: Student housing requires a higher level of protection than renting out to small families as college students are notoriously reckless.
• Property management style: If you hire a professional property manager, you have to include them into your policy.

All of these should play a role in your choice of insurance for real estate investors.

Multifamily Insurance vs. Single-Family Insurance: Understanding the Differences

Among the various types of homeowners insurance for rental property, multifamily insurance is different from single family insurance. The former needs to cover all the rental units within the home in addition to the external walls and roof, all the common areas inside and outside, and any additional structures associated with the property.

Meanwhile, single family home insurance includes the entire primary structure, attached and detached structures, and outside spaces.

Apartment building insurance differs from condo insurance too as the latter usually covers just the separate condo units. For coverage of the common areas and the external structures, landlords need an HOA master policy.

Multifamily insurance is also distinct from commercial landlord insurance which protects commercial properties like office spaces, retail buildings, warehouses, and other rental properties used by businesses.

Types of Coverage: What Does Multifamily Property Insurance Include?

Multifamily insurance coverage varies depending on the needs of the market, the property, and the landlord. Some coverage is standard, while there are add-ons that investors can opt in based on their specific situation.

First, let’s take a look at the standard coverage:

Property Damage Coverage

Multifamily dwelling insurance covers the entire building as well as the separate rental units and additional structures. Multifamily property damage coverage can also include things like boilers, heating and cooling systems, and machinery installed in the building. In addition, it protects the personal property of the landlord, like equipment, furniture, appliances, and other things used for the purposes of the rental business.

Depending on the size and type of the property, the coverage might be equivalent to commercial property insurance.

In most cases, the multifamily insurance policy protects against fire, severe weather (storms, hurricanes, hail, and lightning), social unrest, and unintentional tenant damages.

Liability Insurance Considerations

The landlord liability insurance serves as general liability coverage. This includes medical expenses and legal costs associated with accidents that happen on rental multi unit properties. In most cases, tenants, guests of tenants, property managers, contractors, and vendors are all covered under multifamily liability insurance.

Additionally, professional liability and advertising liability are also frequently covered by multifamily insurance policies.

Loss of Income Insurance

Lost rental income is another thing that’s included in the best insurance for landlords of multi unit properties. In case a covered event leaves your property or a unit within it temporarily uninhabitable, you’ll be compensated for the amount of business income you lose during this time. This means that you can keep paying off your mortgage, property taxes, and other recurring expenses.

Enhancing Your Multifamily Insurance with Additional Coverage

Besides the standard coverage explained above, multifamily real estate insurance can also protect against some optional risks too, including:

• Flood
• Earthquake
• Vandalism
• Riots
• Theft
• Commercial umbrella coverage

Whether you decide to opt in for these additional coverages should depend on your location, property, risk tolerance, and budget.

Common Exclusions in Multifamily Insurance Policies

No matter how comprehensive multifamily rental property insurance is, there are some items that are never covered.

In specific, multifamily insurance does not include:

• Regular wear and tear
• Intentional damage inflicted by the tenant
• Tenant’s personal property (this is covered by the renters insurance)

You should figure out other ways to protect yourself and your multifamily investment property against these risks, like conducting timely maintenance work, performing careful tenant screening, and requiring tenants to get renters insurance.

5 Best Multifamily Insurance Companies

One of the main factors that determine how good your multifamily investment property insurance will be is the company that you get it from. Each company offers different policies with different pricing structures. We’ve reviewed the popular names in the US insurance industry to rank the top choices for multifamily property landlords.

The 5 best multifamily insurance companies for rental properties in the US market are:

Steadily

Steadily is a company that specializes in landlord insurance for all types of residential properties, including both long term and short term rental insurance. Their policies are truly comprehensive, while the costs are affordable. Steadily is available across the entire US market and has a dedicated multifamily insurance policy.

State Farm

State Farm is another top multifamily insurance provider that works in all US states and cities. State Farm offers different types of landlord insurance for multi unit properties including apartment insurance, condo insurance, and others.

Liberty Mutual

Liberty Mutual is also among the best multifamily insurance companies. They provide good standard coverage with options to add extra coverages. Meanwhile, the company offers major discounts in various cases such as a multi policy discount, a claims-free history discount, and a paperless discount.

Farmers Insurance

Farmers Insurance provides good insurance for apartment buildings that is available in all US rental markets. What this company stands out for is the additional coverage options that landlords can choose from to customize their policy.

Travelers

Last but not least, Travelers is one of the 5 best multifamily insurance companies. They cover various types of multifamily rental properties including duplexes, triplexes, quadruplexes, apartments, condos, and others. Travelers operates in 42 US states.

When looking for the best protection for your multifamily real estate investment, it’s recommended to get in touch with a few insurance agents and companies in order to get a number of multifamily insurance quotes. This will allow you to compare between options and select the right fit for your needs and budget.

Cost Factors: What Affects Your Multifamily Insurance Premiums?

The cost of multifamily insurance is as diverse as multifamily properties themselves. It’s difficult to give averages because the price depends on the market, the property size, the property type, the coverage, and many other factors.

Nevertheless, most insurance companies quote an average premium of $1,000 to $3,000 per year for every one million dollars worth of insurance coverage. In general, it’s safe to say that landlord insurance for multi unit properties costs 20-25% more than homeowners insurance due to the increased level of risk.

Related: Investor’s Guide: Landlord Insurance vs Homeowners Insurance Explained

For comparison, you can check out how much is condo insurance in the US market.

Let’s take a look at the major factors that impact the multifamily insurance cost:

Location and Risk Factors

Like everything else in real estate investing, the price of insurance is driven by the market where a property is located. In particular, multifamily insurance premiums are higher in places with high natural disaster frequencies and high crime rates. They are also more expensive in locations with less landlord-friendly legislation.

Meanwhile, if your rental property is close to a fire station, for example, it will benefit from a lower rate.

Building Age and Condition

The second most important determinant of cost is the property type, specifications, age, and condition. Newer buildings that are well maintained cost less to insure because incidents are less likely to occur.

On the flip side, if your property is old and there are plenty of problems with it, companies will charge a lot due to the high risk associated with renting it out.

Also, multifamily buildings made from fire-resistant materials cost less in terms of rental insurance.

Tenant Demographics and Occupancy Rates

The type of tenants that occupy your property and the rental strategy affect the cost of landlord insurance too. Renting out to students and the elderly is associated with more risks than renting out to young professionals and small families.

Moreover, Airbnb insurance costs significantly more than long term rental property insurance as Airbnb hosts tend to be less careful and act more irresponsibly.

Tips for Reducing Your Multifamily Insurance Costs

You can expect the price of your multifamily rental insurance to reach a few thousand dollars per year, so it’s important to try to control the cost as much as possible.

Here are a few things you can do to this end without compromising the coverage:

• Install a reliable home security system
• Maintain your multifamily rental property well
• Carefully screen tenants
• Pay premiums annually, not monthly
• File claims only when really necessary

How to Choose the Right Insurance Policy for Multifamily Properties

Getting insurance for your multifamily rentals is a must, but not every policy will do an equally good job in protecting your property against damage and you against liability. Choosing the best policy should be based on doing due diligence, evaluating multiple companies, and performing detailed rental property analysis to match the exact needs of your investment.

Here are the steps you need to take to select the best multifamily property insurance:

1. Perform real estate analysis at the market level to find out the main risks.
2. Analyze your property to identify specific risks. Look at the age, the condition, the materials, the occupancy rate, the type of tenants, etc.
3. Estimate your annual insurance budget as related to the rental income.
4. Take into consideration whether you self-manage the property or work with a property management company.
5. Evaluate your tolerance to risk.
6. Obtain quotes from different insurance companies and agents.
7. Compare the standard coverage, additional coverages, deductibles, premiums, and company reputation.
8. Match your property with the policy that makes the most sense for its requirements.

Multifamily Insurance Claims: Navigating the Process

It is a good idea to familiarize yourself with the process of filing claims before you need to go through it. If anything goes wrong in your building, the last thing you will want to have to do is to search through websites and read through insurance policies to figure out what to do.

To help you be prepared should an incident happen, here are the steps you need to take when filing an insurance claim for your multifamily rental:

1. Document the damage with clear photos right away.
2. File a claim by filling an online claim form on the insurance company website or calling your insurance agent on the phone as soon as possible.
3. Work with an insurance adjuster to agree on the amount of damage and coverage.
4. Get a mediator in case an agreement cannot be reached.
5. Hire trustworthy contractors to do the repairs.

To enhance the process, it’s important to provide good documentation and to communicate efficiently with the adjuster.

Protecting Your Multifamily Property with the Right Policy

Buying a high-potential multifamily investment property is one thing; managing it properly is another. Obtaining the right multifamily insurance policy that hits the best balance between coverage and cost is a major part of the rental property management process that should not be taken lightly. With so many options available to US landlords, you need to consider a number of factors to select the best policy.

If you’re looking for a company that specializes in insuring rental properties and provides comprehensive coverage for multifamily properties, you should check out Steadily. Getting started with them is easy. Just click below to get a customized quote.