Trying to understand commercial insurance on multifamily

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Trying to understand commercial insurance on multifamily

Kelly Byrd
Rental Property Investor · Los Alamos, CA · Member since 2016 · 114 posts · 62 votes

I'm under contract on a 12-unit multifamily building and looking at insurance options. One thing that isn't clear to me is what types of policies cover various situations. I think I understand the basics of personal home, auto, landlord, umbrella. But when I contacted the folks that sold me those policies they would not write a landlord or umbrella policy for anything more than six units. 

So, I'm now talking to some insurance brokers and agents and I'm looking to BiggerPockets to help educate me on the options, learn the correct terms,  and so I can make an intelligent decision. Here is my current understanding, please correct me if I'm wrong

- Commercial Landlord Insurance.  I think of this as similar to a personal homeowners policy in that it covers the building(s) on this specific property as well as some liability for things related to the operation of the property, like someone suing for an incident on the property. From what I gather, I should be looking at all-risk, replacement cost, and business-interruption coverage. How is this different from Landlord insurance for 1-4 unit properties?

- Umbrella insurance. I've been told that my personal insurance carrier would not add this 12-unit to an personal umbrella insurance, so apparently I need to look at commercial umbrella insurance?  Is this actually different than personal umbrella or is it just that some insurance companies choose not to write umbrella policies for folks with more than 6 units?

So, would someone explain how all these layers fit together? Let's say the 12-unit is held in an LLC and that there is commercial landlord insurance on the property, with $1M per-incident of liability coverage. Do I then add a commercial umbrella policy with the LLC named as the insured? Or do I that umbrella policy with my wife and I as the insured? Would that umbrella provide additional liability coverage for events related to the property as well as general liability not related to the property or LLC?

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  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    9y

    Kelly,

    You have it essentially correct.  The Business Owners form (BOP) or Package policy are the commercial forms used to coverage a Building or Business.  Similar to a Homeowners, they can cover Building, Contents, Loss of Rents, Liability, etc.  Insurance companies call them different things but they boil down to a BOP or Package policy.   The differences between the policies types and what the companies add on for specific industries (ie. Landlords) can make comparing difficult.  You should get proposals with detailed breakouts of the the coverage included. 

    Your ideas on how the policies fit together are correct. The underlying policy (BOP or Package) would be written in the name of the owner of the property (LLC). The umbrella provides additional Liability coverage that kicks in after the Liability coverage of the BOP/Package is exhausted. So if the BOP/package had a limit of $1,000,000 and there is a claim that settles at $1,500,000, the BOP/pkg pays the first $1,000,000 and the umbrella would pay the $500,000 left over.

    Umbrella policies also cover over Business Auto and the Employers Liability section of Workers Compensation.  If you have either, the umbrella would respond if those limits are exhausted as well.   Without knowing the details of the "events" and the details of the umbrella policy I could not tell you. 

    If you have any employees you need to have Workers Compensation and should consider EPLI (Employment Practices Liaiblity Insurance).  If you use any subcontractors or have any tenants who get reduced rent or other compensation for work done at the location I recommend the Workers Compensation also. 

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  • Chris Le
    Insurance Agent · Walnut, CA · Member since 2016 · 23 posts · 4 votes
    9y

    Hi Kelly,

    Anything above a 4 unit property is considered a Commercial policy.  

    Your best option is obtain a packaged policy to cover both the Property and general liability coverage.  In regards to Umbrella, you would not be able to include that in your personal umbrella since the property is over 4 units.  You should be able to obtain a commercial umbrella in the range of $500 per every million.  

    If the property is under a LLC, you would want place the primary policy and the Umbrella under the LLC.

    Hope that helps!  DM me if you have more questions, I'm in CA as well. 

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  • Andrew Johnson
    Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
    9y

    @Kelly Byrd This is going to sound like a really simple answer but you should just ask the insurance broker what it would cost to take the commercial insurance policy from $1MM per incident/$2MM total up to $2MM per incident/$4MM total (or whatever threshold you'd like).  You might find (and I'm no insurance agent) that it costs you less than you think.  For me, just increasing the policy limits was cheaper than adding a separate commercial umbrella and I don't think the net result is really any different.  I don't have any autos or employees so it's strictly insurance for and around the property.

    Also, what I did find was that the "insurance guy" (not sure if I should call him an "agent" or a "broker") was able to get me a much better policy than I was able to on my own.  Most of the national insurance brands that you can think of that advertise on TV don't have great rates on commercial multifamily properties.  Or, more accurately, when I inquired about their rates they were extremely high compared to the 2 quotes the regional bank was able to obtain.  Your mileage, of course, may vary.

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  • Kelly Byrd
    OP
    Rental Property Investor · Los Alamos, CA · Member since 2016 · 114 posts · 62 votes
    9y

    @Andrew Johnson: Great minds think alike! Part of my motivation for asking this questions was that I was weighing raising the limits to 2MM/4MM rather than adding a commercial umbrella and I wanted to understand what each would cover. For my situation, this LLC would have only this property, no employees, no other assets.

    Agree about the nationals vs the regional. I'm talking to a few regional folks now.

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  • Jeremy Clemons
    Real Estate Investor · Carlsbad, CA · Member since 2013 · 8 posts · 0 votes
    9y

    Question for this group - I have 4 vacation rentals listed on a 4MM personal umbrella policy.  Recently I have read that a personal umbrella wouldn't cover those properties because they are conducting business.  What is the best way to verify my personal umbrella would apply ?  Do I need a separate commercial policy for these units?

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  • Chris Le
    Insurance Agent · Walnut, CA · Member since 2016 · 23 posts · 4 votes
    9y

    Jeremy,

    What type of policy did you get the for the vacation rentals?  Commercial or Personal?  If the properties are written on Commercial paper the personal umbrella policy usually will not apply unless it was written under a certain program. 

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