Insurance - Any Suggestions On A Good Company?

Question

Hello Everyone!

I'm about a 13 days from closing on the 7 unit in San Diego and I'm starting to look for an insurance company for the building.  I wanted to know if any of you have suggestions on what to look for and the things an Apartment Owners Insurance policy should include.   Anything I need to be sure to safe guard against or avoid in the policy?

Derek Lacy · Answer

Dawn glad to help and we can help with other risk management or insurance placement needs you could have.  Here is a quick primer on the exposures to loss you face running any size apartment complex.  If you or anyone needs any further explanation for this or any of the coverages we suggest, I will certainly help explain.  Message on here or any of my other contact methods below.

- Derek I Lacy, CIC, CPCU

APARTMENTS Category: Real Estate and Rental Property

Description of operations: Apartments are dwellings built to provide residential accommodations for multiple individuals or families through a rental agreement. Apartment buildings can be one story or multi-story, include two through dozens of living units, and may provide services such as clubhouse facilities, laundry, fitness center, swimming pool, and playgrounds.

Property exposures are from the electrical wiring, heating, air conditioning, cooking and plumbing systems. The age of the building is an important consideration, along with updating of wiring, heating, air conditioning, plumbing and roof. If the building was converted from another occupancy, it should meet all current residential building codes. Each apartment unit may have a separate heating system, or there may be a boiler building to supply heat to all units. All systems must be properly maintained on an ongoing basis. There should be hard-wired smoke/fire alarms in all units and common areas. If alarms are battery-powered, there must be documented records of periodic maintenance. Housekeeping is critical if there is a central laundry area. Washers and dryers must be property maintained.

Crime exposure is from employee dishonesty and money and securities. Rents are generally collected the first of the month, and there may be large amounts of cash on hand. Deposits should be made promptly with appropriate security provided. Monetary transactions must be controlled through the use of receipts and regular monitoring. References and background checks should be conducted on all employees. Access to apartments must be limited to those authorized to do so, and access to master keys must be strictly controlled. Units should be rekeyed when there is a change in tenant.

Inland marine exposure comes from accounts receivables, computers, contractors’ equipment (lawn and maintenance tools), and valuable papers and records (leases and mortgage). Duplicates of all data should be made and kept off premises for easy replication in the event of a loss. Tools and maintenance machinery should be periodically inventoried and kept in a secured area after hours.

Premises liability exposure can be high due to the number of tenants and guests visiting the premises. All buildings should meet life safety codes and be in compliance with codes on smoke and fire detection, fire extinguishers, and carbon monoxide detectors. Security of tenants within the building and in parking areas is rapidly becoming the responsibility of the owner or operator of the premises. There should be adequate interior and exterior lighting. Parking lots and sidewalks need to be in good repair, with snow and ice removed, and generally level and free of exposure to slip and fall. Balconies should be regularly inspected and maintained. Locks should be rekeyed after a change in tenant to prevent unauthorized access. Swimming pools, exercise facilities, and playgrounds should be limited to tenant use only, and be properly maintained. Personal injury losses may occur due to alleged wrongful eviction, invasion of privacy, or discrimination. Clear guidelines for tenant acceptability are important.

Automobile exposure is generally limited to hired non-owned but may include service vehicles. Any driver should have a valid driver’s license with MVR’s checked regularly. Routine maintenance on owned vehicles should be documented. Personal use of company-owned vehicles must be controlled.

Workers compensation exposure hazards usually are service-, janitorial- or maintenance-related. Back pain, hernia, sprain, and strain are the most common injuries. Employees should be trained in the proper use of any maintenance machinery. Interaction with tenants or guests can be difficult; employees should be trained in dealing with difficult situations. Animals owned by tenants can injure workers.

Minimum recommended coverage:

Building, Business Personal Property, Business Income, Employee Dishonesty, Money and Securities, Accounts Receivables, Computers, Contractors’ Equipment, Valuable Papers and Records, General Liability, Employee Benefits, Umbrella, Hired and Nonownership Auto, Workers Compensation

Other coverages to consider:

Equipment Breakdown, Computer Fraud, Employment-related Practices, Automobile Liability and Physical Damage

Carlos Enriquez · Answer

I'm a veteran so I use USAA, but whatever company you use, ask them what their criteria for insuring is.  My insurance company actually sent out an "appraiser" to determine replacement cost, and that is what my policy premiums are based on.  I had no choice in the matter...they use replacement cost as their criteria.

Justin R. · Answer

My properties are insured through USAA as well, and they've always sent an inspector out to establish replacement cost as well.  I have twice adjusted my coverage up and down from what the inspector recommended, so know that you certainly can diverge if you want to.

Parker Cox · Answer

Hi Dawn,

I am an independent insurance agent out of La Mesa in San Diego.  Our company has a few packages specializing in coverages for that sweet spot between 4-10 units.

You will want a master policy that is gonna have your property coverage and liability shared amongst the units.  You will also want a policy that has business income protection, which means if the entire building were to burn down your loss of income would be replaced during the rebuilding and re-renting process.  You will also want to make sure there is equipment breakdown coverage for thinks like Heat and AC.  And depending on the age of your property, you will want Ordinance and Law coverage so if your building needs something replaced, you have the extra coverage to bring it up to code.

I hope that helps.

Jason Bott · Answer

@Dawn Oree If you approach insurance agents with the above statements, you will get all sorts of different policies and you will be comparing apples to oranges.  What you need to do is determine how you want to policy to react when there is a claim.

What do you want the policy to do when you have a $5000 claim?  If you will pay that out of pocket, then you may want to pass on a lot of the additional coverage's.  If you want as little out of pocket, then these additional coverage's are a must.

As far as individual coverage's go, without making this post several pages long, the coverage that can have the largest impact on claims being paid out is Replacement cost or Actual Cash Value.

Replacement Cost will replace your property no matter the age or value of the property lost.  A roof that is 25 years old will be replaced with a new roof.

Actual Cash Value will give you the cost of the value of the property, less depreciation.  With that same roof that is 25 years old will probably only get 40% - 50% of cost covered.

Hopfully that gets you started in the right direction.

Insurance - Any Suggestions On A Good Company?

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