What does apartment building insurance cover?
A multifamily policy covers three things: damage to the building, lawsuits from people hurt on the property and the rent you lose while a damaged building is repaired. Most owners buy those as a package and add separate policies for the risks the package leaves out, like flood, earthquake and large liability claims.
It doesn’t cover tenants’ belongings. Those fall under each tenant’s renters insurance, which is why many leases require it. Underwriters also expect the building to be run as a business, with written leases, vendor contracts and maintenance records.
| Coverage | What it pays for | Who usually needs it |
|---|---|---|
| Property | Repair or rebuild after fire, wind, hail, burst pipes and other covered perils | Every owner; lenders require it |
| General liability | Injury and property damage claims from tenants, guests and the public | Every owner; lenders require it |
| Loss of rents / business income | Rent lost while units are unlivable after a covered loss | Every owner with debt |
| Umbrella / excess liability | Liability claims above the general liability limit | Most owners; required by agency lenders |
| Equipment breakdown | Boilers, central HVAC, electrical panels and elevators that fail | Buildings with regulated boilers or central systems |
| Ordinance or law | Code upgrades and demolition the base policy won’t pay | Older or legally nonconforming buildings |
| Flood | Flood damage, which property policies exclude | Buildings in high-risk flood zones, and many outside them |
| Earthquake | Shake damage, which property policies exclude | Owners in seismic areas |
| Crime / fidelity | Theft of rents or deposits by employees or managers | Owners with staff who handle money |
| Workers’ compensation | Injuries to your own employees | Owners with on-site staff, where state law requires it |
Property, liability and loss of rents: the core three
Property coverage should be written at replacement cost, meaning what it costs to rebuild today, not the building’s market value or its price. Land isn’t insured, and a building can cost more to rebuild than it would sell for, especially an older one.
Watch for a coinsurance clause. It reduces a claim payment if you insure for less than the required share of replacement cost. Fannie Mae, for one, accepts coinsurance only when it is offset by an agreed amount provision of at least 100% of insurable value.
Loss of rents is the coverage owners skip and later regret. After a fire, the mortgage, taxes and payroll keep coming while rent stops. Twelve months of coverage is a common baseline, and it’s what agency lenders ask for.
Flood, earthquake and ordinance or law coverage
Flood and earthquake damage are excluded from standard property policies, so they need their own coverage. Plenty of owners in lower-risk zones buy flood insurance anyway, because flood maps don’t show every place that floods.
The National Flood Insurance Program classifies a non-condominium building with five or more units as “other residential.” Under 44 CFR 61.6, the Regular Program limit for those buildings is $500,000 of building coverage and $100,000 of contents per policy, the same building limit as non-residential property. On a large building, $500,000 won’t come close to replacement cost, so owners often add private or excess flood coverage.
New NFIP policies generally take effect after a 30-day waiting period, though the wait doesn’t apply when the policy is bought in connection with making, increasing, extending or renewing a loan. If a federally regulated lender’s loan is secured by a building in a special flood hazard area, federal law requires flood insurance on it.
Ordinance or law coverage pays for what the building code forces after a loss. If a city requires a damaged older building to be fully brought up to code, or partly torn down, the base policy usually won’t pay for that work. Ordinance or law coverage fills the gap with three parts: the undamaged part you must demolish, the cost of demolition and the extra cost of building to current code.
What lenders require: the Fannie Mae multifamily rules
Agency lenders set the floor for most stabilized apartment loans, and Fannie Mae’s Multifamily Guide spells out its insurance requirements in Part II, Chapter 5. Freddie Mac has its own rules, and the two agencies have worked to align them. Even with a bank loan, expect a lot of the same requirements.
- Property coverage on a replacement cost basis, for at least 100% of insurable value on a single-building property and 90% on multiple buildings, using a special form policy.
- A deductible of no more than $50,000 for all other perils if the property is worth under $10 million, or $100,000 at $10 million and up, with separate rules for wind, named storm and earthquake.
- Business income or rental value coverage based on 12 months of actual loss sustained, with a waiting period of no more than 72 hours.
- General liability of $1 million per occurrence and $2 million aggregate, plus umbrella coverage that starts at $1 million for properties with up to 250 units.
- Ordinance or law coverage if the property is nonconforming under current land use law, with demolition and increased cost of construction each at least 10% of insurable value.
- Equipment breakdown coverage if the property has high-pressure boilers or other regulated vessels, and flood coverage if income-producing buildings are in an A or V flood zone.
- Carriers rated A- or better by A.M. Best, Fannie Mae named as mortgagee and additional insured and workers’ compensation where state law requires it.
Why did apartment insurance premiums rise so much?
Apartment insurance costs rose sharply in recent years, and the increases were concentrated in a few regions. A September 2025 Federal Reserve FEDS Note using property operating statements found that real average property insurance cost per apartment unit rose from $39 a month in 2019 to $68 in 2024, an increase of about 74%.
The same note found the largest increases in Florida and along the Louisiana and Texas coasts, with bigger jumps in the Southeast and central Midwest than in the Northeast or northern West Coast. It also found that landlords passed only about a third of the increase through to rents, absorbing most of it. Freddie Mac has said property premiums were rising 10% to 20% year over year in 2023.
Your location matters more than any national average. Two similar buildings in different ZIP codes can get very different renewals.
Worked example: how insurance changes NOI and value
Insurance is an operating expense, so every premium dollar comes out of NOI, and buyers price buildings off NOI. At a 6% cap rate, each $1 of annual expense takes about $16.67 off the value.
Take a 40-unit building paying the Fed note’s 2024 average of $68 per unit per month. That’s 40 × $68 × 12 = $32,640 a year. At the 2019 average of $39, the same building paid $18,720. The $13,920 difference, capitalized at 6%, is $232,000 of value.
Now say the building earns $480,000 of NOI after that $32,640 premium, so it’s worth $8,000,000 at a 6% cap rate. Its renewal comes in 25% higher, at $40,800. NOI falls by $8,160 to $471,840 and value falls to $7,864,000, a $136,000 loss from one renewal.
The loan feels it too. With $360,000 of annual debt service, DSCR slips from 1.33 to 1.31. That’s still fine here, but on a tighter loan a bad renewal can push DSCR below a covenant or shrink what a refinance can borrow.
| Before renewal | After 25% increase | |
|---|---|---|
| Annual premium (40 units) | $32,640 | $40,800 |
| NOI | $480,000 | $471,840 |
| Value at 6% cap rate | $8,000,000 | $7,864,000 |
| DSCR on $360,000 debt service | 1.33 | 1.31 |
How to lower apartment building insurance premiums
The cheapest premium comes from a building that looks like a low risk on paper and in person. These steps tend to move underwriters the most:
- Raise deductibles to what you can actually carry, within your lender’s caps, and keep cash reserves to match.
- Get an accurate insurable value. Overstating replacement cost wastes premium, and understating it can trigger coinsurance penalties.
- Fix the big four before renewal: roof, electrical, plumbing and heating. Document the work with dates, permits and photos.
- Add fire sprinklers, monitored alarms, water leak sensors and automatic shutoff valves where it makes sense.
- Require renters insurance in leases and certificates of insurance from every vendor, naming you as additional insured.
- Keep clean loss runs. Small claims you could have paid yourself can cost more in later premiums than they recover.
- Market the policy every year through a broker who places multifamily, and consider a portfolio policy if you own several buildings.
How this works for a 5+ unit apartment building
Once a building has five or more units, it’s insured and financed as commercial property. That means commercial package policies, lender insurance requirements and, for flood, the NFIP’s “other residential” limits instead of the residential limits for 1-4 unit homes.
It also means insurance shows up in the sale. A buyer’s underwriting starts from your actual premium, so an expensive policy lowers the NOI they’ll pay for. Our property management fees guide covers another big expense line, and our DSCR loan guide shows how lenders size loans off that NOI.
Insurance when you sell an apartment building
When you sell, your policy stays in force until closing, and the buyer’s policy has to be bound and in effect the moment title transfers. Buyers and their lenders will ask for proof of coverage, usually an insurance binder or certificate, before they fund.
During due diligence, expect requests for your current policy, the premium and several years of loss runs. Disclose open claims, and read the contract’s casualty clause so you know what happens if there’s a fire before closing.
After the deed records, cancel your policy and ask for a refund of the unearned premium. Don’t cancel early. A gap of even a day leaves you exposed if closing slips.
Selling your apartment building to Skyline
Skyline Capital Investments buys apartment buildings with five or more units nationwide, including buildings with rising premiums, open claims, storm damage or coverage that’s hard to renew. We underwrite the building as it is and handle our own insurance at closing.
Send the address and unit count through the form on this page or call (469) 660-2977. We typically respond within 48 hours.
