If you’re the owner of a multi-family dwelling, it’s vital that you understand your options for insuring your property and that you know what’s covered under various policies. It’s also an excellent idea to educate your tenants regarding their insurance options so they know what’s covered by your insurance, and what policies they might want to purchase on their own.
What counts as a multi-family dwelling?
A multi-family dwelling refers to any structure that is capable of housing more than one occupant in their own unit. Each living unit would then have its own kitchen, bathroom, and living spaces, with walls dividing the units to keep them private and separate.
Some examples of a multi-family dwelling are:
- a house with separate upstairs and downstairs flats
- a duplex with two units side by side
- a four-plex, meaning a home with four separate apartments.
While the term can also apply to condos, townhouses, and standard apartment complexes, this guide is most applicable to stand-alone houses with multiple interior units.
Owner-occupied dwelling insurance
The first question to consider when shopping for multi-family dwelling insurance is if the home is owner-occupied.
Do you, the owner, live in one of the units of your property?
If the answer is yes, you can typically purchase standard homeowner’s insurance to cover the cost of repairing damages to the structure and its surrounding exterior features.
Note that standard homeowner’s insurance covers the exterior and framework of an entire structure so renting out a unit in the house shouldn’t affect that policy. If the home suffers roof damage during a storm, for example, your homeowner’s insurance should cover repairs even if that damage is located over the rented unit.
Non-owner occupied dwelling insurance
If you, the owner, do not live in the multi-family dwelling, you would typically need what is called a Dwelling and Fire policy, or DP. A DP policy covers the structure itself in the event of a fire or other disaster and is meant for multi-family dwellings used solely for renting and not for your own occupancy.
To ensure you opt for the best DP policy for your unit, note some details about this type of coverage:
- Covering Lost Rent: A DP policy might also provide coverage for “loss of use,” or the home’s fair rental value, reimbursing you for the cost of lost rent while the house is being repaired. If you rely on the rental income from your multi-family dwelling, ask about this coverage and ensure it’s adequate for your needs.
- Re-homing Your Tenants: Loss of use coverage might also include a small amount to help tenants relocate during repairs. This can also be an excellent coverage option to consider if you want to ensure your tenants decide to return to your property after it’s repaired! They may appreciate every courtesy you extend to them during that time.
- Covering Additional Structures: It’s vital to note if outside structures and features need additional coverage. These structures and features might include a garage, a swing set for the children, or a wood deck. Ensure you have proper coverage for these items as well as the house itself.
Liability insurance reimburses the cost of medical bills for someone injured on your property, as well as property damage for which you’re responsible. As examples, if a renter slips on ice outside the property, you might be liable for their medical bills. If a tree falls on their car, you might also be liable for the cost of repairing their vehicle.
It’s vital for a property owner to understand that these costs are not covered in a standard homeowners or DP policy. As even a minor accident can wind up being very costly, it’s good to ensure you have adequate liability insurance for your multi-family dwelling.
Personal property insurance
A homeowners or DP insurance policy do not provide protection for personal belongings inside a unit, and this includes kitchen appliances, ceiling fans, and light fixtures. If you don’t live in the house and don’t provide furniture for tenants, you might not think you need personal property insurance; however, it’s good to consider some coverage for appliances and other such costly items.
Also, you might help your tenants understand that their belongings are not covered under your property insurance, and suggest they carry a renters personal property insurance policy. You then won’t run into misunderstandings about your financial responsibility if their furniture, clothes, and so on are damaged in a fire, flood, or other disaster.
What affects your insurance costs
If you’re a property owner, no doubt you want to do everything possible to lower your insurance costs. Note some details that often affect insurance premiums so you can consider making adjustments where needed:
- Old wiring: Old wiring is more likely to become bare and frayed and put your building at risk for an electrical fire. Updating the home’s wiring might help reduce your fire insurance costs.
- Firewall: A firewall between units helps to contain a fire that starts in one location, which then reduces fire damage to the house overall. Note the construction of the wall or walls between units and consider upgrading to an actual firewall, for the safety of your tenants and to lower your insurance costs.
- Owner-occupied: Owner-occupied multi-family dwellings are often maintained more readily than those with owners who live offsite. If possible, consider moving into one of the home’s units to lower your insurance costs and keep your property in the best possible condition overall.
- Smoke and CO detectors: Most areas have requirements as to smoke alarms in homes and rental properties especially, but you might lower your insurance costs by adding even more smoke detectors and installing carbon monoxide detectors as well. You might also ask your insurance agent if providing fire extinguishers to tenants could also lower your insurance costs.
- Exterior maintainance: Ask your insurance agent if you might lower your liability policy costs by hiring an outside company to remove snow and ice or otherwise maintain the property’s grounds. A professional maintenance company might be more skilled at keeping a property safe for tenants and the reduction in your insurance costs can offset their fees.