Multifamily properties are tangible real estate investments, but they carry risks and do not guarantee preservation of capital. Accidents, property damage or other losses can create financial liabilities. Multiple units, tenants and shared amenities create insurance needs that should be assessed for the specific property.
Insurance can help manage some of these risks, but protection depends on the policies you purchase and their terms, limits and exclusions.
Insurance Policies For Multifamily Properties
These four types of coverage are worth discussing with a licensed insurance agent when buying or operating a multifamily property. The appropriate policies and limits depend on the property and its risks.
1. Property Insurance
Property insurance can help protect the buildings you own against covered losses. For a property with multiple buildings, ask how the policy schedules each building and applies its limits.
Structure/Building-wise Insurance: Buildings may be insured with separate limits. A separate limit does not by itself guarantee broader coverage, a particular price or protection against flood or mold; review the covered causes of loss, exclusions and any endorsements.
Whole-Property Insurance: A policy may cover multiple buildings under a blanket limit. Confirm which locations and property are insured and how the limit applies to a loss.
Property policies cover only the causes of loss included in the contract, subject to deductibles, limits and exclusions. Do not assume every weather event, flood, theft or vandalism loss is covered. Renters insurance can protect a tenant’s belongings and provide tenant liability coverage, but it does not replace the owner’s building insurance or fill every gap in it. Review the Florida Department of Financial Services guidance on commercial property insurance and renters insurance.
2. Rental/Business Income Insurance
Business income coverage can compensate for covered income losses when operations are interrupted by property damage from a covered cause of loss. A health hazard, vacancy or other interruption does not automatically qualify; the policy’s trigger, exclusions and any endorsements determine coverage.
A loss of rental income can strain operating cash flow. While property coverage addresses covered physical damage, business income or rental value coverage may address qualifying income loss during the policy’s covered period, subject to its terms and limits.
Certain elements of the coverage you should look into when it comes to business income insurance are:
- The covered income or rental value, exclusions and applicable limits.
- How the policy calculates a covered loss and whether extra expense coverage is included.
- The waiting period, period of restoration and any time or monthly limits.
- Whether ordinary payroll is included and any applicable time limits or exclusions.
3. General Liability Insurance
General liability insurance may cover specified bodily injury or property damage claims for which the insured is legally liable, along with covered defense costs, subject to the policy’s terms, limits and exclusions. For example, a tenant’s slip-and-fall claim may raise liability questions, but being injured on the property does not automatically establish the owner’s liability or insurance coverage. The National Association of Insurance Commissioners’ small-business insurance guide explains general liability and umbrella coverage.
4. Umbrella Liability Coverage
Umbrella liability insurance generally provides additional liability limits above specified underlying policies and may provide certain broader coverage. It does not automatically cover every exclusion or gap in those policies. Review the umbrella policy’s exclusions, required underlying limits and any retained amount you must pay before coverage applies.
Conclusion
Discuss these coverages with a licensed insurance agent and choose policies and limits suited to your buildings, operations and lease obligations. Insurance costs belong in the operating budget, but purchasing all four types does not guarantee protection against every loss. Preemptive safety measures remain essential, so don’t wait until after an incident to get insurance.
