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A Guide To Apartment Building Insurance

Over the last couple of years, apartment buildings have become challenging businesses to insure. Yet because of issues like fires damaging the structure, tenants getting injured on the property, and lawsuits related to lead-based paint, apartments are seeing a rise in insurance-related issues.

The point is that having a group of people living in your building poses a legal liability risk and a significant risk to the building itself.

As a result, the pool of insurance companies willing to offer coverage for apartments shrinks each year—and the insurance companies that do still cover apartments are getting more specialized. They’re often niche, non-standard insurance companies that specialize in insuring apartment buildings.

Understanding the apartment insurance market is a critical part of learning the nuances of an apartment insurance policy and avoiding landmines along the way.

This guide will explain you what you need to know.

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What Coverages Do Apartment Building Owners Need?

Each building and apartment operation is different, so there is no definitive list of insurance policies for you to obtain. That’s why it’s important to consult with a knowledgeable insurance agent—they can help you understand what your building might need that another does not.

In general, though, the following are the policies that we recommend to most apartment owners.

General Liability

General liability insurance for apartment owners covers the basic liabilities you face while renting out your units. It covers property damage that you cause to others and bodily injury that happens on your property.

For example, we once had an insurance claim where a tenant had a metal fan near their closet. While getting dressed, the tenant's hand caught the ceiling fan, resulting in a significant cut that led to some medical bills. This was considered bodily injury under the general liability policy.

Additionally, we have seen claims where stovetop cooking triggered a sensitive automatic sprinkler system. The sprinkler released liquids all over the tenant's room, resulting in damage to numerous electronic devices. This was considered property damage caused to others under the general liability insurance policy.

Because a nearly infinite number of things can happen on the premises, this policy is usually your first line of defense when someone makes a legal demand or sues you for an accident.

Commercial Property Insurance

Property insurance, or the insurance policy that covers damage caused to the building, is necessary for most apartment owners. This policy covers fires, hurricanes, storms, vandalism, theft, and many other bad things that can result in damage to your building.

Unless you live in a place like New York City, where the legal climate for apartment owners is unique, property insurance is almost always your most expensive yearly purchase. And if you live near a coastal area, it will be the most expensive policy you purchase each year by a very large margin.

Why is it so expensive?

These large and expensive buildings are exposed to the elements every single day. They are also exposed to tenants that forget to turn the oven off or let the water pipes freeze. Property insurance for apartments is plagued with a high frequency of large claims. In fact, apartments are one of the most unprofitable types of business for insurance companies to write, which should indicate to apartment owners how necessary this coverage is!

Fortunately, there are still options out there, many of which are hyper-focused on solving the needs of apartment owners and steadily fixing the issues that have plagued the industry for the last couple of years.

Some of these options are creative deductible structures, the use of deductible buy-down policies, catastrophe modeling software, having policies with multiple insurance companies on a quota-share basis, or using foreign insurance companies in countries like Bermuda.

In short, there are options out there if you are working with an experienced insurance agent.

Tenant Legal Liability (TLL)

As discussed above, property insurance for apartment buildings can be tough to find and very expensive. That’s why tenant legal liability insurance policies exist.

Apartment buildings often have issues with tenants that damage to the property, causing fires,  explosions, and smoke or water damage. Over $3 billion in damage is done each year because of cooking fires alone!

Renters usually have renters insurance to cover these issues, but keeping track of tenants who frequently cancel their insurance or fail to provide proof of renters insurance can be tough.

This creates a situation where, if a tenant causes damage and they have no renters insurance, the insurance claim needs to be filed under your apartment property insurance policy. It will be subject to a large deductible. It will also register as a loss and potentially drive up the costs on the entire policy.

A tenant legal liability policy is an insurance policy that costs $7-$13 per month, and you can build it into the rent of tenants who don't have insurance. It will cover these tenant-caused damages with no deductible and will protect your expensive policies (the building insurance policy) from these frequent and smaller losses.

Tenant Discrimination (If You Manage The Property)

A tenant discrimination policy covers the legal expenses for administrative proceedings and lawsuits from current, prospective, and former tenants alleging discrimination.

Laws like the Fair Housing Act (Title VIII) dictate what procedures you can implement in your apartment business. Additionally, if you aren't fully ADA compliant, a tenant or a prospective tenant could allege discrimination based on the lack of availability of wheelchair ramps or other accessible features.

A tenant discrimination policy can help protect you against these administrative issues and the resulting lawsuit in a tenant discrimination allegation.

Cyber Liability (If You Manage The Property)

If you have any access to private tenant information, such as payment information, Social Security numbers, special medical accommodations, or private correspondence, you should purchase a cyber liability policy.

If all that tenant information were to be breached and leaked to the public, it could cause considerable damage to them and result in a huge legal issue for you.

You could get sued for the damages caused to your tenants, you would be on the hook for credit monitoring and identity theft services, and you would have to hire forensic cyber security experts to understand the full scope of the breach—and that’s just the beginning.

A cyber insurance policy will help pay for all of that. It will also help you manage compliance with the post-breach requirements from the state and federal governments.

How To Get The Best Terms On Apartment Insurance

1) Document building changes and update your insurance agent.

One of the best things you can do to keep your insurance premium as low as possible is to keep a spreadsheet dedicated to each building that you own. In this spreadsheet, you’ll note (in detail) when updates/replacements are done on the roof, HVAC, plumbing, and electrical systems.

These updates are weighed very heavily in the insurability and pricing of your apartment insurance policies. Additionally, you’ll likely have to create this document while you are shopping for insurance, so having it available and regularly updated will be a huge help.

2) Choose stability over the cheapest insurance company for the best long-term results.

In the apartment insurance market, it is always good to develop strong history and relationships with the large and stable markets, if possible. There are a lot of smaller carriers that come into the marketplace, underprice their policies, and leave the apartment market shortly after.

Although this can be nice for some temporary savings, when the pricing goes up on that underpriced policy or the company you were using gets out of the apartment insurance market, you will have to go back to the established carriers. Unfortunately, their new business pricing is not as good as their pricing for those who have been with them for a long time and have a solid history. This long-term relationship will also help insulate you somewhat from big market swings.

3) If you have a wooden frame apartment, have all the details of your sprinkler system prepared.

One of the big issues with larger wooden-frame apartment buildings is that fires happen. Although it is not an issue with just wooden frame buildings, the damage a fire does to a wooden frame structure is almost always catastrophic.

One of the biggest things an underwriter is thinking about is paying out for the inevitable large fire claim on a wood-frame apartment building. It is best if you can come out of the gate with all the information on your sprinkler systems, your central station fire alarms, your up-to-date fire extinguishers, and any other method of preventing or mitigating fire damage that you have.

If you have all this information ready to go, insurance companies will see you in a more favorable light. Your fire hazard risk management might just help you get some lower rates.

4) Utilize a standard lease agreement—and background check potential renters.

This probably goes without saying, but a bad tenant can be a big issue for apartment owners. They can tear the building up, get in fights on the premises, sneak in dangerous dogs, and convince their friends (who probably have similar habits) to move in.

Having a lease agreement drafted and approved by an attorney will make your life much easier to establish who is responsible for liabilities caused by the tenant. In addition, insurance companies like seeing that you vet your tenants, so their risk of paying a dog bite claim or tenant damage will go down.

5) Have a dog policy that mirrors your general liability insurance policy (or that you are comfortable with).

Most insurance companies are trying to limit liability for dog bites that happen on the premises. Now, what do you—as a building owner or manager—have to do with a dog bite? It is something that landlords are sued for surprisingly often, especially if someone’s neighbor has a dog that bites them. You will most likely be listed on that lawsuit.

Make sure you understand the dog bite exclusions on the policy, as each insurance company is different. It is common for policies to exclude all dog bites, but some insurers exclude only dog bites from aggressive breeds. Regardless, you should read the policy in detail and come up with rules to where you only allow the pets or breeds that your insurance will cover (or decide that you are comfortable taking on the risk yourself).

6) Use insured contractors for renovations and collect certificates of insurance.

Somewhere along the line, you will most assuredly need to hire a contractor to maintain the building, fix various tenant issues, or remodel/renovate the property.

When you are doing this, hire a contractor that has workers compensation and general liability insurance (at a minimum). Also, collect a certificate of insurance from them verifying this coverage before they step foot on the property.

If a contractor without insurance does faulty work that injures a tenant, you could be held liable for the injury. For example, if you hired an uninsured contractor to install a handrail on the roof, and a weld breaks loose while someone is leaning on it and they fall off, you are now responsible for that liability.

The second is that if one of the contractor's employees were to get injured on your property and they don't have workers compensation insurance, you could be liable for their medical bills, since that injury happened under your direction.

7) If you have a loan on the property, purchase "loss of rents" insurance.

Most real estate deals that we work on involve some type of financing from a bank. If the property is damaged, you might not be able to collect rents until the repairs are made. If part of or all of your income generated from that property is wiped out, you have to pay the bank note from your own pocket for an indefinite amount of time. Plus, you might not be able to sell the property while it is getting repaired, because damaged properties do not sell for as much (and might be less than the bank loan).

Loss of rents (also called business income or business interruption insurance) covers your net income and operating expenses while your building is being repaired due to a covered claim. This will cover items such as your mortgage payment to keep the bank at bay until your property is back up and running.


Whether you operate a quadplex or have a thousand units, obtaining a good insurance policy requires an insurance broker with experience in apartments and access to specialty insurance carriers.

If you have a smaller apartment building, you can get started on an online quote here, but if you have a larger building or a portfolio of buildings, give us a call. One of our experts will help you through the process of obtaining quotes and selecting a quality insurance policy for your business.

Austin Landes, CIC

About The Author: Austin Landes, CIC

Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.

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