Real estate, such as multifamily properties, is generally considered a good investment as it’s tangible and can offer a better safeguarding of capital than other investment assets. However, a casualty loss with underinsurance can convert a good investment into a fiscal liability.
Multifamily properties are often defined as either commercial or residential real estate based on the number of units. Regardless of classification, it’s necessary for multifamily property owners to protect themselves from loss with adequate insurance coverage.
Determining what is considered adequate can be challenging when factoring in the variety of ways in which property coverages can be written, geographic location, pricing, and certain terms and conditions which can impact the payout in the event of a loss—to name a few.
Building Insurance
For property owners of all types, insuring the physical structure of your property from damage is not only good business practice, but if you’re financing your purchase, lenders may require a policy that will cover – at a minimum – the amount of the loan or an amount sufficient to repair and/or rebuild the structure. Property owners or corporations that own more than one building can choose between insuring each physical structure with scheduled limits of insurance – or covering multiple physical structures under one blanket limit of insurance.
Scheduled/Specific Limit
For property owners or developers who own multiple buildings, coverage can be obtained per building. This will mean that each building has its own scheduled/specific limit, which is the most the insurance policy will pay for a covered cause of loss. This type of policy works well for property owners who own multiple multifamily buildings and who may also have other investment properties, such as commercial or mixed-use buildings who may prefer non-sharing of limits for the multiple buildings.
Blanket Limit
If a single property owner or corporation owns multiple properties, then they may opt to purchase a blanket insurance policy. This means that the limit of insurance can be applied to multiple buildings, locations, or coverages.
A blanket policy provides better protection against losses than a specific coverage policy and provides peace of mind as property values fluctuate.
When determining which option is the “right” choice, the common response amongst insurance professionals is, “it depends!” And it’s the appropriate response because it does depend on factors, such as the spread of risk, the total insurable value at any one location, the blanket limit of insurance, coinsurance, inflation, margin clause, maximum loss limitations, and more.
Rental/Business Income Insurance
Unfortunately, there may be times when tenants must vacate their units due to health hazards or structural damage. In these instances, it’s very likely that the income stream from the unit will be disrupted. Rental/Business Income Insurance will compensate you/your business for the lost revenue for a specific duration of time (as determined by the individual policy). There may also be a waiting period before the policy will respond.
Liability Insurance
Liability insurance is incredibly important for all property owners to maintain, but it’s one of the most complicated in terms of determining what will be adequate coverage.
Slips and falls, swimming pool deaths, life-threatening incidents, assault, and battery are a few common liability exposures for multifamily properties. In terms of liability insurance, it may be worth it to review historical liability loss data for the business and purchase higher limits than you may think you’ll need. By doing so, should the worst happen, you and your business are protected.
Additionally, it’s important to understand whether the liability policy defense limits are inside or outside the coverage limit. You should take into consideration any legal costs that may erode the liability limit of insurance and that could create financial hardship for the Borrower.
Excess Liability
Excess liability provides additional limits above the underlying policy, i.e., your primary General Liability insurance policy. This policy does not expand the terms and conditions of the underlying policy.
Excess Umbrella Liability
Excess umbrella liability insurance also provides additional limits above the underlying policy, but it can provide broader coverages than an Excess Liability by covering certain situations outside the scope of an underlying policy or conditions that are excluded in an underlying policy. Umbrella liability insurance is an important consideration for any property owner.
Contact Armada Analytics
Contact Armada Analytics, Inc. and let our over 116 years of total insurance experience assist you in ensuring the insurance coverage obtained by the Borrower meets your insurance requirements.
