Steps to Compare Apartment Building Insurance Policies

The management of residential properties has its share of financial risks, which many owners only realize once the risk happens. The risk may be from fires, slip-and-falls, or a burst pipe, but whatever it is, the bottom line is that you have just lost six figures worth of money. 

The purpose of apartment building insurance is to secure not just the physical structure itself but also the revenue stream it produces. This article highlights how to make a proper comparison when evaluating the policies.

Why Is It Important To Do A Comparison Of The Policies?

It is possible for two policies to be almost identical in terms of price but differ greatly in their coverage. For example, one company may limit its coverage regarding loss-of-rent to three months, while the other will have it for twelve months. This is the kind of information that may determine whether the owner survives financially from a catastrophic event.

Those who compare only the prices may find out about the problem only when they file the insurance claim.

What Should You Review First in Comparing Insurance Policies?

Begin by assessing the replacement cost valuation. The calculation process varies by insurer, and any old or inaccurate valuation will leave the property owner paying out of their own pocket when it comes to a total loss situation. It is important to ask how the insurer determined the replacement cost value.

Secondly, review the deductibles that relate to certain perils such as wind, hail, or water damage. The base deductible may appear small, but you must also pay the named storm deductible, which is usually listed somewhere in the details of the coverage.

How Do Liability Limits Impact Your Decision?

The scope of your liability exposure for a multifamily building is much greater than what most investors understand. Accidents from slips and falls, swimming pools, dogs, and even mold exposure fall under general liability insurance for apartments. The comparison of the per-occurrence and aggregate limits will determine if a particular policy meets the risks associated with the foot traffic of the property.

It is also one area where there is a significant difference between commercial residential insurance and traditional home insurance. The multifamily building comes with common areas, management office space, and amenities, which create exposures not covered in a typical homeowners policy. Investors who do not factor in this difference when comparing quotes will be underinsured for their biggest risks.

What Documents Do You Need to Gather Prior to Quote Requests?

Carriers can better price insurance if you provide them with all your documents in order. The lack of documents will result in a delay in the underwriting process and will lead to requests for quote revision.

Prior to contacting your brokers, make sure you have the following documents:

• Rent roll and occupancy status for the last 12 months

• Loss runs reflecting claims history for the last 3-5 years

• Information about the condition of the property, roof age, and system replacement

• Square footage plans or documentation for each building on the property

• Any lender requirements if the property is mortgaged

It is important that underwriters are able to quote accurately at once rather than provide you with an estimated number, which will be changed afterward.

How Do You Assess an Insurer’s Reputation for Claims Processing?

It makes no difference whether prices and terms are good if claims are not paid in time and fair manner. It is important to know how a particular insurance company treats its claims before entering into an agreement.

It is often said that talking to other people who have worked with a certain company when they made their claims will give you a clear picture. It is always better to lose a little bit of money in premiums rather than have problems with claims processing.

Does Building Type Affect the Quotes Comparison?

Absolutely! Garden style building with separate structures has different fire and wind risks compared to a midrise building with common areas like stairways and elevators. The apartment complex insurance must consider this fact because a one-price policy does not fit in all cases.

Moreover, the material of construction is an important factor. Typically, frame construction is more expensive than masonry and concrete. In addition, some older properties may require some improvements in electric or plumbing systems in order to get terms from particular insurance companies. Comparison of quotes is possible only in the case when each of them is based on real building characteristics.

What About Smaller Buildings or Those with Mixed Uses?

The owner of smaller multifamily properties might think his choice of policies would only be in the realm of residential policies, but he can run into problems because even an eight- or four-unit building represents commercial liability.

When it comes to multi-family home insurance, even when dealing with small portfolios, the need for due diligence remains. This means valuing the property correctly, having enough liability coverage, and ensuring there is loss-of-rent insurance as well. A comparison with the policies offered by a generalist insurance agent will quickly uncover the gaps.

Bridging the Gap in Comparing

Policy comparison is more effective when it adheres to a well-defined checklist rather than a disorganized assessment of quotes. The following elements should be lined up for each policy option before the final decision is made.

• Ensure that the replacement cost covers present-day construction prices

• Evaluate the per-occurrence and aggregate limits of liability for all quotes

• Compare named-perils deductibles and not the deductible alone

• Assess the period and trigger clauses in loss-of-rent coverage

• Consider the track record of the insurance company in handling claims on properties similar to yours

Using the checklist for each quote will help you make sense of what used to be a mountain of paperwork.

Partnership With Experts to Enhance Your Coverage

Comparison of different policies will help you get closer to the right one, yet creating a coverage plan that really reflects the risks your property is exposed to requires some specialized knowledge. This is exactly what the firm that focuses solely on multifamily risks can offer you.

Moore Multifamily works with real estate asset managers, principal apartment owners, and property management executives to structure a proper apartment building insurance plan tailored to the actual risks associated with a property, not general insurance plans adapted from residential risks. Be it a garden-style property or a mid-rise urban portfolio, we treat risk management as an advisory process, and we will provide you with an explanation for every coverage and exclusion involved.

If your coverage plan lacks that kind of scrutiny, you might want to get a second opinion. Contact us now and get your coverage review.

FAQs:

How often should an insurance policy on the building be revised?

It should be done every time you renew your policy, but also consider revising it every time after renovations, acquisitions, or changes in occupancy. Rents and construction costs rise rapidly, making the valuation obsolete in just one or two years.

Does a small premium indicate poor coverage?

Not necessarily, although it deserves thorough analysis. A smaller premium means that it is either a more economical carrier structure or less comprehensive cover, therefore comparing of limits and exclusions should be performed in detail.

Is it possible to include the property management company in the same insurance policy as the building?

Yes, in most cases, it will be possible. This may simplify the coverage of liabilities for both the property and the property management firm; however, it may be required to make the latter additional insureds.

What is the case when claims exceed the liability limits of the policy?

All sums beyond the policy limits become the responsibility of the property owner personally, unless umbrella or excess liability policies are purchased. That is the reason why it is extremely important to compare aggregated as well as per-occurrence limits when quoting.

Are old apartments automatically subjected to higher premiums?

No, age is not a key issue here. It depends on the condition of the system. A properly maintained building with recently done work such as electric installation, plumbing, or roofing can obtain almost the same rates as a new one.