Insurance might seem like just another line item in your budget, but it plays a pivotal role in protecting your returns. With premiums rising year over year, having a sound insurance strategy is essential for safeguarding both NOI and long-term equity.
Why Insurance Costs Are Rising:
- Climate Change: More frequent and severe weather events (floods, hurricanes, wildfires) increase risk.
- Material Inflation: Higher construction and labour costs mean insurance companies must pay more for claims.
- Increased Claim Frequency: Industry-wide, insurers are raising rates to offset recent losses.
How to Build a Smart Insurance Strategy:
- Shop Annually: Don’t automatically renew. Compare quotes and coverage every year.
- Work With Brokers Who Understand Multifamily: General brokers may miss asset-specific risks or savings opportunities.
- Bundle Policies: Consolidate multiple properties under a master policy for better rates and coverage.
- Raise Deductibles: A higher deductible often results in much lower premiums.
- Understand Replacement Value vs. Actual Cash Value: Make sure your coverage aligns with lender requirements.
Types of Coverage to Consider:
- Property Insurance: Covers physical building damage from fire, wind, or vandalism.
- General Liability: Protects against tenant injury claims.
- Loss of Income (Business Interruption): Replaces lost rent during a covered incident.
- Umbrella Policies: Provides extra liability protection beyond standard coverage.
Real-World Strategy Example: An investor owning 3 properties bundled them under a single carrier with increased deductibles and added umbrella coverage. This reduced their annual premiums by $14,000 while improving claim response time through a single point of contact.
Final Thought: Your insurance strategy is more than protection—it’s a line of defence for your investment returns. Reevaluate it often, customise it thoughtfully, and make it work in your favour.
