This article was posted on Saturday, Nov 01, 2014

There are many things you should consider when selecting the proper amount of insurance for your apartment building.  Your apartment building is a large investment and it can also be a potentially large liability should someone find you negligent for their injuries.  Here are some ways to protect your investment and yourself from liability. 

Selecting the Proper Amount of Insurance

If you’re like most people, you probably think of your properties in two ways – what is the property worth and how much are my taxes?  For insurance, the focus changes to how much will it cost to replace the structure and what is the liability exposure?  Large losses do happen more than you think.  I suggest you become familiar with the replacement cost and insure your building to that amount.   

What if I Don’t Want to Replace It?

Some carriers do offer the option of insuring your building at Actual Cash Value (ACV).  This is defined as Replacement Cost less Depreciation.  This would allow you to insure your building for less, but bear in mind, if you suffer a large loss, the settlement will be less.  This comes in handy for people who would not want to go through the process of rebuilding.  The biggest challenge here is determining what the ACV limit should be.

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Another option is Functional Replacement Cost.  This provides coverage to replace the structure with a building of the same function and size using today’s methods of construction.  Though this option is less expensive, it has a limited use as the town’s laws surrounding your building may require you to rebuild the original structure due to its historical significance.  Be wary of the use of this type of coverage as you could be well under-insured if you’re required to rebuild your home to the quality of its original construction.   

Get Plenty of Liability Insurance

How much is enough?  How much can you afford or how much liability do you have?  Most people underestimate their exposure.  A tenant getting injured due to a loose railing, a furnace malfunctioning or a faulty electrical problem could all cause serious bodily harm for which you could be held liable.  Start with at least $1,000,000 and go from there.  You can always purchase an Umbrella policy for additional limits of liability to extend over the current policy. 

Consider Purchasing Building Ordinance or Law Coverage

Did you know that if you suffer a loss, your insurance carrier is only obligated to restore you back to where you were before the loss?  Your local town zoning office may have different ideas.  They can enforce you to bring your building up to current zoning codes and this extra expense will not be part of the insurance settlement.  This can be at your expense.  The good news is you can purchase insurance coverage to cover this potential exposure.  How much should you buy?  It depends on many variables.  How old is your building and what are the current building/zoning codes today versus what you have in your building is where you should start.  I strongly urge you to investigate this exposure. 

Renter’s Insurance

Do you require your tenants to purchase Renter’s Insurance?  You should.  Why?  Perhaps the biggest reason is if they cause a substantial loss to your building, your insurance carrier can and will recover the loss by subrogating against their tenant’s policy.  Why is this important?  Imagine suffering a large fire loss caused by a tenant.  Chances are after your insurance carrier pays you for the claim they will either increase your rates tremendously or drop you all together.  And this would have happened for a loss that was not your fault.  Most people are okay with being dropped or getting a rate increase if they are negligent, but most property owners get upset when a tenant is negligent and caused these events.  The other added benefit will be the tenant will have coverage for a loss and pursue damages against you, claiming some sort of negligence. 

Earthquake and Flood

If you have an exposure to these perils, it never hurts to get an estimate for these coverages or policies.  You can then gauge the cost versus the risk. 

Editor’s Note:  Be sure to call AOA’s Group Insurance Program for apartment owners for a FREE money-saving quote!  Call 800-827-4262 or visit  

Reprinted with permission of the Vermont Apartment Owners Newsletter.



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