How Location Affects Your Multifamily Property Insurance Costs
It may not be fair, but your property's location plays a massive role in determining how much you pay for your multifamily insurance policy.
When it comes to multifamily property insurance, location plays a huge role in determining your premiums and, often, in determining if an insurer will even consider covering a property.
Properties in areas prone to natural disasters, high crime rates, or dense urban environments typically face higher insurance costs. In this article, I'll walk you through many of the reasons behind these increased costs and what (if anything) you can do to mitigate them.
Natural Disaster Risks
Natural disasters can cause significant damage to multifamily properties, when they occur. Even if major disasters are fairly rare in an area, the fact that they can happen at all naturally will often lead to higher insurance premiums, let alone if your property is in an area with relatively frequent major disasters.
Flood Zones
Properties located in flood zones are at a higher risk of water damage from heavy rainfall, storm surges, or overflowing rivers. The majority of multifamily insurance policies will exclude flood damage — so if your property is situated in a flood zone, you'll likely need to purchase separate flood insurance. This can significantly increase your overall insurance costs.
Earthquake-Prone Areas
Regions with a higher likelihood of seismic activity, such as California and Alaska, are subject to increased insurance premiums. Earthquake damage can be extensive and costly to repair, leading insurers to charge more for coverage in these areas.
Similar to flood damage, most policies will flat-out refuse to cover earthquake damage. It's usually clearly spelled out in the policy. As a result, you'll generally need to purchase separate earthquake insurance if you're in an area with any risk of a quake.
Note that earthquake insurance isn't legally required in many places, but legal issues aside, it's a great idea (and your lender will likely require it anyway).
Severe Weather Regions
Areas prone to severe weather events, such as hurricanes, tornadoes, or wildfires, also face higher insurance costs. The potential for widespread damage and the increased likelihood of claims in these regions result in steeper premiums.
Crime Rates and Urban Density
The level of crime and population density in an area can also impact multifamily property insurance costs.
High Crime Areas
Multifamily properties in neighborhoods with high crime rates are more likely to experience theft, vandalism, or other criminal activities. Insurers view these properties as higher risk, which means you'll pay increased premiums to account for the potential cost of claims related to criminal activity.
Dense Urban Environments
Properties in densely populated urban areas often have higher insurance costs due to the increased risk of damage from neighboring properties. For example, if a fire breaks out in an adjacent building, your property may sustain smoke or water damage, even if the fire doesn't directly affect your structure.
Mitigating Location-Based Insurance Costs
While you can't change your property's location, there are steps you can take to help reduce the impact of location on your insurance premiums.
1. Invest in safety measures: Installing security systems, fire sprinklers, or other safety features can demonstrate to insurers that you're proactively working to reduce risks, potentially leading to lower premiums.
2. Maintain your property: Regular maintenance and timely repairs can help prevent small issues from escalating into major problems that could result in costly claims.
3. Shop around: Compare quotes from multiple insurance providers to ensure you're getting the best coverage at a competitive price for your location.
4. Consider a higher deductible: By opting for a higher deductible, you can lower your monthly premiums, but be sure to have sufficient cash reserves to cover the deductible if needed.
Conclusion
Understanding why your location is giving you less-than-ideal insurance premiums is the first step in accounting for them (and hopefully reducing them). You can't always completely "fix" these issues, of course, but there are concrete steps you can take.
One of the best ways to find lower insurance costs is through Janover Insurance Group. Our team can shop your insurance needs to our comprehensive network of insurance providers, and you can find the best deal for your investment.