Multifamily Property/Landlord Insurance

[Donald Mitema]

Looking to dive into our first multifamily property via an LLC. Got a ridiculous quote from my current homeowner carrier (State Farm) for $10K annually (seller is currently paying about $2800 annually). $10K will certainly throw all my numbers off track.

Any leads on independent insurance agents that can help with getting decent (good/reputable) insurance cover?

Anything specific I should ask them about insurance cover?

Is it a good idea to ask the seller who his/her carrier is (and then approach them for a quote?)

[John Mocker]

Donald,

The current owners agent is certianly a good place to check.  However, I would try to determine what you want quoted in terms of limits and coverage before approaching any agents.  Comparing the quotes without giving specifications could lead to differences in price caused by lower coverage rather than better pricing.  

The starting place is the Building coverage.  The better coverage is based on "Replacement Cost" (RC).  That is the cost to rebuild the existing structure with the same kind and quality of materials.  The lesser form of coverage is called Actual Cash Value" (ACV).  It is defined as RC - depreciation.  If you subtract the land value from the purchase price that will give you an approximation.  The problem with ACV is that on a partial loss, depreciation will be subtracted from the Repair cost resulting in a claim payment less than the cost of the repairs.

Next you need to determine how much coverage.  Most Insurance companies have programs that use construction costs in the area to estimate this number.  You could contact builders to find out an approximate cost per sq ft. or use your own estimate.  

Next questions is what deductible to quote.  In the event of a loss, the deductible is the portion you pay.  If the repairs are $5,000 and you have a $1,000 deductible, the claim payment would be $4,000.  

You need to figure out if you need contents coverage (for your property there, not the tenants) and if so, what limit.

The policy should have built in coverage for Loss of Rents.  If not that should be added.  You should indicate the amount needed.  Some policies include a percentage of the Building limit for loss of rents so the coverage could be more than you need.

The policy may include coverage for detached structures.  If not, be sure to indicate if you need that added and for how much.

If the building is older or is non conforming, request that the quote included "Oridinance & Law".  That coverage provides an additional limit (could be dollar amount or a percentage of the building coverage) to pay for upgrades needed to comply with changes in the building codes.

Water Backup coverage (also called Sewer backup in some policies), Service line coverage (water, fuel, sewer, septic lines outside the building), and Equipment Breakdown are all coverages to consider adding

For Liability, I recommend purchasing the highest limit available.  Since you are trying to quote apples to apples you should set a limit for the quotes ($500,000 for example).  I recommend also that you add the optional "Personal Injury Protection" coverage.  It protects for Libel, Slander, wrongful entry, etc. 

Once you have what you want quoted, I would contact several Independent agents who represent multiple carriers.  Good luck with the process and please PM me if you have any questions on the above.