Insurance is a necessary expense whether the policyholder is a renter looking to cover his personal belongings or a multifamily property operator interested in protecting his investment. In this article, David Hansel discusses the four types of insurance he believes every multifamily property owner can’t be without.
Insurance is a necessary expense whether the policyholder is a renter looking to cover his personal belongings or a multifamily property operator interested in protecting his investment. Regardless, property insurance provides peace of mind for those ‘what-if’ moments. Mishaps happen, and they are exacerbated with multifamily properties because there are more units, tenants, common areas, and other facilities, increasing the chances of a mishap occurring.
At Lucern Capital Partners, we take a prudent approach to obtaining the types of insurance that will provide our assets with the best protection and also conduct due diligence on the insurance carrier. In this article, I will discuss the four types of insurance I believe every multifamily property owner can’t be without.
The first type of insurance property owners should attain is property insurance. This type of insurance protects against damage to the physical structure of the building. There are two general types of property insurance to choose from:
- Building Insurance: Coverage can be obtained on an individual building. Each building would have a separate insurance policy for properties with multiple structures. This could be helpful if, for example, a mold problem exists in one building and professional remediation is required.
- Whole Property: This type of insurance covers the entire property, regardless of the number of buildings.
There are a number of factors multifamily asset operators should consider before choosing the type of Property Insurance to obtain including, the age of the buildings, whether there are any known issues, and the policy coverage and cost.
General Liability Insurance
General Liability insurance protects against claims for bodily injury and third-party damage that tenants may attribute to a property owner’s negligence. For example, suppose a tenant enters the building lobby after walking his dog in a torrential rainstorm. The tenant slips and breaks his hip, putting him on bed rest for six weeks. The tenant realizes his medical insurance won’t cover all of his medical bills, so he sues the property owner claiming that they should have done more to ensure people wouldn’t slip in the lobby. To protect against this scenario, multifamily property owners should carry General Liability Insurance sufficient for their property.
Umbrella Liability Insurance
Umbrella insurance covers what other insurances, namely General Liability policies, do not. For example, it can cover situations in the event of terrorism or changes to state government legislation. This type of insurance essentially serves as an extra layer of liability protection for multifamily asset owners.
Business Income Insurance
A multifamily property is a business. Therefore, it is important for asset owners to be covered when their property suffers damage that causes or interrupts the flow of normal business income. A hurricane is an example of when Business Income Insurance would be beneficial in addition to the other insurance policies discussed previously. Before choosing a policy, look closely at the coverage provided. Specifically, the terms around:
- Actual loss sustained
- Waiting period
- Payroll limits
There are no buts about it. Insurance is critical for multifamily properties. The type of policy varies by location and can include other types of insurance, such as flood insurance. However, the must-have types of policies Lucern recommends are Property, General Liability, Umbrella Liability, and Business Income.
I’d be interested in hearing your thoughts on the types of insurance multifamily property operators should have. Comment below or email me at David.firstname.lastname@example.org.