Indiana Multi Family Insurance Needed

[Jeffrey Wannberg]

I am looking around for insurance companies that offer insurance for an old apartment building (30 Units). The 2 buildings were built in 1920. I currently have Indiana Farmers, and the rates were inline last year with previous owner, but this year going up considerably. So looking to see others suggestions on where to look.

Thanks,
Jeff

[Jason Bott]

Originally posted by @Jeffrey Wannberg:

@Jason Bott

The issue that is causing the increase is around replacement cost and coinsurance. The values the buildings are insured to now are closer to the actual cash value (ACV) of the buildings rather than replacement cost value (RCV). When they use a coinsurance formula they say I am way under-insured and need to adjust the amounts.

(Amt of carried insurance)/(Amt of required insurance - 90% of RCV) X (Value of loss) - Deductible = Claim payment

($470,000)/($1,179,355) X ($40,000) - $5,000 = $10,940.92 would be paid out by Indiana Farmers

In total the 2 buildings ACV is around 1M. But to replace them they are estimating 2.5M. I believe it would probably cost that to replace the buildings, but not sure if you would want to. The area is class C and it would be tough to justify the cost to build new buildings. 

The increase in rates is mostly due to the increased insurance amounts. Not sure what I should do, right now they want $6k more a year.

This is a universal issue with investors in the class C marketplace.  

You have a few options;

1)  Keep the buildings under insured, but set the value to be in line with your reserves so that in the event of a claim, you can cover the shortfall of the claim payout. 

2) Insure to value and pay the extra premium

3) change the valuation from 80% coinsurance to Agreed Value.  This removes the coinsurance penalty.  That coverage form gives you the ability to insure this Building @ $1M, not $2.5M.   There are a few companies out there that can do this, but they are few and far between.

Most of my clients will go with #1 or #3, unless their lender dictates to go with insuring to value.