Introduction
After working with hundreds of multifamily property owners, we've seen the same mistakes come up again and again. These oversights might save a few dollars on premium, but they can cost hundreds of thousands when a claim occurs.
Mistake #1: Underinsuring the Building
This is the most common — and most expensive — mistake we see. Many owners insure their building for its purchase price or assessed value, rather than its replacement cost.
Why it matters: If your building is insured for $2 million but would cost $3 million to rebuild, you could face a significant gap when filing a claim. Worse, many policies include a "coinsurance clause" that penalizes you for underinsurance, paying only a percentage of your claim even for partial losses.
The fix: Get a professional replacement cost estimate every 2-3 years, especially with construction costs rising rapidly.
Mistake #2: Skipping Loss of Rent Coverage
When a fire or other disaster makes your building uninhabitable, your tenants stop paying rent. But your mortgage, taxes, and other expenses don't stop.
Why it matters: Loss of rent coverage (also called "business income" coverage) replaces the rental income you lose while your building is being repaired. Without it, you're paying expenses out of pocket for months — sometimes years.
The fix: Ensure your loss of rent coverage equals at least 12 months of gross rental income. For properties in areas with longer rebuild times, consider 18-24 months.
Mistake #3: Ignoring Ordinance or Law Coverage
Building codes change. When you rebuild after a loss, you may be required to bring the entire building up to current code — not just repair the damage.
Why it matters: Standard property insurance only covers rebuilding to the same condition as before. If you need to add sprinklers, upgrade electrical systems, or meet new accessibility requirements, those costs come out of your pocket.
The fix: Add ordinance or law coverage, typically available for an additional 10-15% of your building coverage.
Mistake #4: High Deductibles Without Cash Reserves
A higher deductible means lower premiums. But can you actually afford to pay $25,000 or $50,000 out of pocket when a claim occurs?
Why it matters: We've seen owners choose high deductibles to save on premium, only to struggle to cover the deductible when disaster strikes. Some even delay necessary repairs, leading to bigger problems.
The fix: Only choose a deductible you can comfortably pay within 30 days. Keep that amount in a dedicated reserve account.
Mistake #5: Not Requiring Tenant Insurance
When a tenant causes a fire or water damage, your property insurance pays for building repairs. But then your insurance company may "subrogate" — meaning they sue the tenant to recover costs.
Why it matters: If the tenant has no insurance and no assets, your insurance company can't recover anything. This can affect your claims history and future premiums.
The fix: Require all tenants to carry renter's insurance with a minimum liability limit (typically $100,000). Make it a lease requirement and verify coverage annually.
Protect Your Investment
These mistakes are entirely avoidable with the right guidance. A good insurance broker will help you structure coverage that actually protects your investment — not just checks a box.
Want a professional review of your current coverage? Get a free policy analysis from our team.