Fourplex Insurance: How it Works and What it Covers

While owning and managing a fourplex can be relatively straightforward, the insurance aspect can be tricky.

Some property owners do not invest in a fourplex for rental business purposes only. Instead, these investors will use part of the fourplex as their primary home while making rental income from the remaining units. Having two occupancy types is where the confusion arises regarding insurance matters.

If you are investing in a fourplex and wonder what insurance is best, this article explains everything you need to know about how to insure these types of properties.

What is Fourplex Insurance?

Fourplex insurance provides coverage for multi-family buildings housing four units under the same building. It may differ from regular homeowner's insurance if part, or all of the fourplex is used for a rental business.

Fourplex insurance usually covers damages to the property's structure, contents, liabilities, and loss of use. However, the right insurance policy for your fourplex will depend on the occupancy type of each unit, which we’ll discuss next.

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Fourplex Insurance for Owner-Occupied Property

Homeowner's insurance is the best coverage if you occupy part of the fourplex, although the occupancy arrangements will affect your overall policy and costs.

For instance, if the fourplex is only owner-occupied, meaning you do not rent out any of the units, homeowner's coverage alone will work. The HO-3 policy, the most common policy for homeowners, is generally enough. It provides coverage against the primary structure, additional structures, contents, personal liabilities, and loss of use which pays for living expenses when the fourplex is uninhabitable.

However, if part of the fourplex is used for rental business, you will require additional protection against liability, and loss of rental income. In some cases, extra coverage can be added as riders to your homeowner’s  policy, but check with your insurance agent to be sure.

How to Insure a Fourplex That is Rented Out

Once your property becomes tenant-occupied only, you will need to invest in landlord insurance or a dwelling fire policy" coverage. Landlord insurance comes in many forms, each policy providing coverage for varying perils. At the very least, you must ensure the coverage you choose provides:

Property coverage

This policy covers damages to the fourplex's primary structure against common perils like smoke, fire, lightning, explosions, vandalism, and damage from burglars.  If you rent out a furnished building, you can add your personal items to the policy as long as these items are stored at and used to service the units in the fourplex. In addition, the insurer can also cover additional structures within the property, such as fences, detached garages, and sheds.

Liability coverage

You might take all the necessary measures to ensure the fourplex is safe for all tenants, guests, and third parties. But accidents happen, and all it takes is a single slip or fall, among other situations, and you could be slapped with a negligence suit. This could leave you with high legal and medical costs, running your pockets dry.

General liability coverage protects you from financial damages such as a judgment in a lawsuit, up to the limit of your coverage. Fortunately, liability policies for landlord insurance usually have a higher limit than homeowner's insurance policies.

Loss of use coverage

Loss of use or rent coverage provides landlords with rent payments when the property is uninhabitable and under repairs or renovations due to a covered loss. The four units in your property might be an incredible source of income when all units have tenants. However, if any damage were to make the whole property uninhabitable, you would lose the four income streams simultaneously.

Even if just one unit becomes unusable, money is still lost when a tenant moves out for major repairs. This coverage will ensure you receive your rent payments from the insurer, helping you to meet your mortgage payments and other expenses.

Additional coverages

On top of these basic policies, you can get additional coverage for your landlord insurance for better protection. For instance, landlord insurance policies rarely cover damages against flood  or water backup damage. The good news is these coverages are  usually available as a standalone policy or you may be able to add them to your landlord insurance as a rider. These additional coverages may be essential even if your fourplex is not in a flood zone area.

Other additional coverage to consider include:

• Sewer backup covers damages from sewer backups into the property.
• Umbrella policy covers extra costs when your individual liability policies hit their limit.
• Earthquake insurance - some policies exclude damages from earth movement, making this coverage worth considering if your fourplex is in an area marked as high-risk.

Cost of Fourplex Insurance

Multi-family residential properties, especially fourplexes, have higher insurance premiums than single-family units. In addition to having more housing units than a single-family property, insurance companies consider other factors in calculating fourplex insurance costs. These factors play a significant role in determining your insurance costs:  

Location

When you're looking for a fourplex to purchase, it's essential to remember that the location will play a significant role in how much you'll pay for insurance. A fourplex located in a part of the country that's prone to natural disasters like hurricanes or earthquakes may be assigned a higher premium. Insurance companies asses location driven risks, and charge accordingly.

Condition of the fourplex

Insurance companies always consider the property's age and the status of its features and other fixtures. Generally speaking, the older your fourplex is, the higher your insurance premium will be.

Besides the primary structure, your insurer will also look at the condition of the wiring and plumbing systems.

The good news is you can repair and replace any old items and give your property a newer and better outlook. This could include ensuring stairways and rails are safely installed or replaced, hallways are well lit, exit ways are appropriately marked, and public areas are well-kept.

In addition, insurance carriers also consider fire safety measures, like installed fire alarms, smoke detectors, and firewalls. These measures will come in handy when negotiating for lower insurance costs.

Insurance deductible

The deductible is the amount you must pay out of pocket before your insurance company starts paying for covered damages. So if you have a $500 deductible and $1,000 in covered damages, you would pay the first $500, and your insurance company would cover the rest.

Insurance companies use deductibles to spread out the cost of claims among policyholders. By requiring policyholders to pay a portion of covered damages, insurers can keep premiums low for everyone. And, because fourplexes are more likely to experience a claim than single-family homes, fourplexes typically have higher deductibles than other types of rental properties.

That said, there are ways for landlords to reduce the cost of fourplex insurance. One way is to raise the deductible. You can lower your premiums by increasing the amount you're willing to pay out of pocket. Just be sure that you set aside enough money to cover the deductible in case you do need to file a claim.

Tips for Choosing the Right Fourplex Insurance Policy

Now that you understand how fourplex insurance works, how do you ensure you choose the right policy? The following tips will help you choose the right fourplex insurance policy:

• Shop early: Fourplex insurance is more complicated for the insurance company than standard insurance policies for single-family units. It has more underwriting requirements and usually takes longer. Start shopping for an insurance provider early enough to ensure you find the right policy. This will allow you time to compare and choose a service provider who meets your needs.

• Work with an expert broker: Besides being more complicated, fourplex insurance is sometimes difficult to find. Why? Because not all insurance providers offer multi-family building insurance. The best way to save all the hassle of searching for the best insurer is to work with a professional broker specializing in multi-family building insurance. Your broker has a fiduciary duty to you and is thus obliged to meet your needs.

• Be upfront about your use: Since insurance coverage for multi-family buildings depends on occupancy, it is crucial you be honest about the living situation in your fourplex. This is more important if the fourplex is mixed-use, where one unit is owner-occupied, and the other units are rented out.

• Choose coverage with replacement cost value coverage (RCV): Some insurance providers offer coverage for multi-family buildings based on the property's loan value. Unfortunately, this can be less advantageous for you. If any damages happen, the mortgage value is likely lower than the cost of replacing the building and other items, reducing the chances of needing to cover these costs with your own money. Make sure you purchase enough coverage to rebuild or replace your property. RCV coverage is better than ACV (actual cash value) coverage because ACV coverage takes into consideration the current value of the property being replaced which includes depreciation. If your roof is nearing the end of its life, ACV will pay only the little cash value remaining whereas RVC would cover the cost to repair or replace it at full value leaving you on the hook to pay the difference.

How to Find the Best Fourplex Insurance

If you're looking for the best fourplex insurance policy, consider using an online insurance broker like Obie. Obie is insurance built for landlords and real estate investors, without the hassle of paper applications and confusing processes.

Obie provides insurance coverage for landlords in all 50 states and has insured more than $4 billion in property to date.

Getting started with Obie is quick and easy. Begin by going to their website and entering your property address to receive an instant quote. Then, you can choose the coverage that best suits your needs and budget.

‍Visit Obie's website now to get started.