Multi-family properties such a duplexes, triplexes, and fourplexes, can be a lucrative way to invest in real estate. Multi-family properties are rented out to multiple families and tenants, reducing the vacancy risk. If a tenant moves out, you still have rental income from the other units. As a result, lenders consider it a less risky investment, making it generally easier to secure financing for them.
Along with the potential rewards of investing in a multifamily home, you need to consider the unique risks that come with owning these types of properties and make sure you have adequate insurance to protect your investment. As they are commonly rented out, either partially of fully, you as the owner need to have insurance that provides coverage for liability risks as well as for the structure of the building.
What kind of insurance policy do I need for my multifamily property?
A multifamily unit, whether it’s a duplex, triplex or fourplex (or more), usually has at least one rental unit. When you have a rental unit, the risk assessment is different than that of a property that is solely occupied by its owner.
Landlord insurance differs from homeowner's insurance as it is tailored to cover the risks of properties that are rented out while also providing coverages that are crucial for landlords, such as general liability coverage and business income coverage. Some of the most important coverages are:
Dwelling Coverage: This coverage pertains to the building structure itself in the event of damages to the structure caused by covered perils such as wind, hail, fire or vandalism to name a few. Insuring for replacement cost value means that your insurance policy covers the cost of replacing or repairing your property with brand new items of similar quality, regardless of the property's current market value or depreciation. On the other hand, insuring for actual cost value takes into account depreciation and pays out the current market value of your property at the time of the loss, which may be lower than the cost of replacing it with new items.
General Liability Coverage: Landlord insurance normally comes with general liability coverage, which becomes vital if you're held legally accountable for harm or damage to a third party on or near your property. For example, if a guest of your tenant slips and falls on the premises, you as a landlord could be held liable for their medical expenses and other costs related to the incident.
General Liability Coverage can cover these expenses related to legal defense, settlements, or court-awarded damages resulting from lawsuits.
Business Income Coverage: Business income coverage comes into play when the property experiences a temporary vacancy due to property damages that need repairing. For instance, if a rental unit remains unoccupied for 15 days due to roof repairs after a windstorm, resulting in a loss of rental income, your landlord insurance can potentially cover this financial setback.
What if I occupy all the units myself?
If a multifamily owner occupies all the units, we’re usually talking about a duplex or similar where a family member or another close personal connection lives in one of the other units. Remember that even if you don’t charge rent and you have a close relationship with the other party, this is still considered a separate residence and you should insure it the same way you would if it was a paying tenant. A commercial line landlord insurance policy can
How much does multifamily insurance cost?
The only correct answer to this question is “it depends”. A premium price will vary according to many different factors such as size of the property, how you use the property, location, standards, coverages and your personal insurance history to name a few.
If you own a multifamily residence and want to know how much your property would insure for, the best way of going about it is by obtaining a quote. You can get a quote from Honeycomb directly on our website, it takes less than 5 minutes.
Insurance for tenants
If you have tenants living in your multifamily property, you may want to consider asking them to get renters insurance. Renters insurance typically offers coverage for personal property, liability, loss of use and medical payments, depending on the insurer and the policy itself. For landlords, requiring renters insurance can help ensure that tenants are financially capable of covering potential damages and losses.
Bottom line
In summary, landlord insurance policies are tailored to properties that are rented out, either in its entirety or partially as long as it is separate units. Homeowners insurance on the other hand is tailored to properties that are occupied by the owner. If you invest in a duplex, triplex, fourplex or a larger multifamily building, a commercial landlord policy is probably the best choice for your insurance needs.
