Apartment Insurance: Am I Over Insured?

Question

I have a 8-unit apartment building in Wisconsin that I purchased in 2018. When I purchased the building I did not shop around too much for insurance. I simply called around local insurance companies and took the first one that returned my call. I prioritized closing my first apartment deal over shopping for a competitive rate and, honestly, I had no idea what kind of coverage I needed. Well, now it is 2021, and I still don't know what kind of coverage I need. The cost of my current insurance is 2.2% of my purchase price and seems to be eating up a lot of my potential profit. The policy seems to cover so much that could go wrong, but I feel like it is just too much. I'm looking to renegotiate my insurance with the current provider or, if necessary, find a new one.

Few questions to you other small apartment investors out there:

1. What should the insurance cover minimally?
2. What are good ideas to have, but not a necessity?
3. What items should I avoid completely?
4. What should the ballpark cost be?

Few questions to you other small apartment investors out there:

• 1. What should the insurance cover minimally?
• 2. What are good ideas to have, but not a necessity?
• 3. What items should I avoid completely?
• 4. What should the ballpark cost be?

Jason Bott · Answer

@Chris Burke at a minimum you want Building coverage, Loss of Rents and General Liability of at least $1M.  May investors with an 8 unit building will consider an Umbrella over that location.

# 2 & 3 are really personal preference and your specific risk tolerance.

#4 - I just quoted some 8 units for 2 separate investors and the quotes are coming in just under $2k per year for Replacement Cost and $1M General Liability

Bjorn Ahlblad · Answer

@Chris Burke 2.2% sounds like a lot to me but rates are very regional. In my area I am paying under 1% on a 12 unit. My policy covers loss of rent in case of fire and way more than I paid for a total loss. Not replacement cost because I would walk away and not rebuild. Replacement was 2.5 (ridiculous) I opted for 1.5 which is still over. Make sure you have liability through an umbrella that covers your assets in case you are sued. That's generally 200 dollars per million.