Insurance is more than just something you budget for when figuring overall costs for your multifamily property; it is an integral part of protecting your financial investment and business operations. What should you know when buying a policy?
We’ve asked agents for the top 5 questions they wished their clients asked to understand their coverage:
1. What type of policy do I have?
When insuring your multi-family property, be certain that you understand how property insurance works and what cause of loss (claims) are covered by your policy. There are three types of coverage: Basic, Broad and Special.
Basic is exactly what it sounds like and includes the standard coverages for claims such as fire, windstorm and smoke damage. Broad includes three additional coverages including failing objects, collapse due to ice, sleet or snow and water damage. Special is the most comprehensive form of coverage you can have – covering all causes of loss (other than excluded losses).
2. What is the True Replacement Cost value of my property?
Your policy will have a Replacement Cost Value of your property – which is not tied to the current market value if you were to sell your property. Your Replacement Cost Value is the money needed to rebuild the property from the ground up in the event of a total loss — not including land value. Your local agent will provide you a recommended cost per square foot based on market-specific claim data and finish/trims in place at your property.
3. What is a Coinsurance Condition?
A Coinsurance Condition on your policy means you have to have enough coverage to be within the required limit replacement amounts from your carrier. Many policies have a high coinsurance limit, up to 100% of the full replacement cost. To avoid a penalty, work with your agent to determine the required replacement cost to be in compliance.
4. Should I get a policy for Business Income Coverage?
Your multifamily unit is first and foremost a business. What happens if it is out of service and your tenants need to leave due to fire or other issue? A Business Income Coverage policy is key to replace lost income when units are not rentable. Months will be needed just to settle the claim, prepare to rebuild and potentially more than a year of construction. Review the premium differences when it comes to increased coverage periods for loss of business income beyond the standard 12 – 15 months — A slight increase in premium will be well worth the offset in income.
5. What else can I do to further protect my property?
Beyond catastrophic loss or disaster, regular wear and tear is one of the greatest threats to your property and not covered by an insurance claim. Good building maintenance, including updates and care for the property’s roof, electrical systems, plumbing and HVAC are essential to help stop claims before they happen and are often a requirement of your policy — Plus it helps lower overall costs, something any property owner can appreciate!