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Landlord Insurance – What You Need to Know about Multi-Family Homes

esposito insurance groupEsposito Umbrella

landlord insurance: multi-family homes

(973) 284-1083 | www.espositoinsurance.com

Q: What kind of insurance do I need for a multi-family home? If you live in the home, a standard home insurance policy can be purchased from some, but not all companies. Insurance policies for 3 and 4 family homes are not offered by many companies but they remain the best mix of coverage and price. Conversely, if you don’t live in the home and rent out all of the units, a dwelling fire policy is generally the best choice. Dwelling fire policies are similar to home insurance in many respects but are more expensive.

Q: How does an investment property get valued for insurance? Good insurance policies require that a building be valued at reconstruction cost, which is based upon labor and material costs, debris removal, demolition, and other factors. Conversely, this is usually not the same value as the market price. The purchase price of a multi-family home is normally valued on the income it generates, as well as supply and demand factors in the local real estate market.

Q: Does a policy on a multi-family home cover loss of rental income? A good one should provide at least 12 months of lost income if your multi-family is damaged by a covered peril. More can be added to ensure that you have enough money to cover for the rent you can’t collect while the house is being repaired. We recommend that you review your policy to make sure that the lost rent coverage corresponds to your income appropriately.

Q: What is a “surplus lines” insurance company? If you have a multi-family that has had claims, or is used for student or Section 8 housing, or has some other characteristics insurance companies feel make it a high risk, you may need to obtain a policy from a “surplus lines” company. This means that the policy does not have the state’s guaranty fund backing if the insurance company becomes insolvent – which means that you wouldn’t get paid if your company goes bankrupt while you have an open claim. Also, these policies are not vetted by the state department of banking and insurance, which means that there is a higher probability of unanticipated exclusions.

Q: What should I require from my tenants? We suggest that all of your tenants be required to carry renter’s insurance for themselves as part of their lease with at least $500,000 in liability coverage required. We also suggest that your lease require you to be named as an additional insured. Renter’s insurance is normally inexpensive, and your policy for the building provides no coverage for your tenant, which means it is to your tenant’s benefit that they carry their own insurance policy.

Q: What is building ordinance coverage? Do I need this? If you are required to rebuild your property differently because of laws or ordinances – such as changing the setback of a building – that have been enacted since your property was built, you are not covered unless your policy contains this coverage.

Want to know more? Call us to get quotes, to review your current policies or to ask any insurance question.

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