Insuring a 5–20 Unit Apartment Building in California: Why It's a Commercial Policy, Not a Landlord Policy

A carrier once sent one of our building owners a letter asking them to raise their coverage by more than $200,000.

The building was a multi-unit in San Mateo. Garage and parking on the ground floor, apartments above... a classic Peninsula soft-story layout. An inspector had done a drive-by and rated the entire ground floor as livable space, at more than double the per-square-foot cost of a garage.

I sent the underwriter the two build types and the actual square footage. The underwriter agreed, the valuation came back down, and the owner didn't pay for a building that didn't exist.

I tell that story because it captures something about apartment buildings that most owners don't hear until they're in the middle of it. Once you own five or more units, you're not buying landlord insurance anymore. You're in a different world, with different forms, different underwriters, and a lot more ways for the details to matter.

Why does a 5-unit building need a commercial policy?

An apartment building with five or more units is generally insured as a commercial "habitational" risk, on a commercial package policy, rather than on a dwelling (landlord) policy.

Dwelling fire forms like the DP-3 are built for one- to four-family homes. A duplex or a fourplex fits. A fiveplex, a 12-unit courtyard building, or a 20-unit walk-up doesn't. At that point carriers treat the building as a small business, because it is one: you have rent rolls, common areas, a laundry room, maybe a manager, and a lot of people coming and going.

If you've been reading our landlord insurance blind spot post, that piece is about the single rental or the small multi. This one picks up where that leaves off.

What does a commercial apartment package include?

Every carrier builds it a little differently, and the policy wording is what actually controls. But a well-built package for a 5–20 unit building typically has these pieces:

There's more depending on the building (earthquake is its own conversation, and so is flood). Our real estate investor guide covers the broader portfolio picture.

What do owners usually have wrong when they first come to us?

I asked my dad, Paul, who has been insuring Bay Area apartment buildings for more than 50 years. When a 6- or 12-unit owner sits down with him for the first time, the same three gaps come up again and again:

Why is the habitational market so tight?

Here's the uncomfortable part: apartment buildings are one of the harder risks to place in California right now, and older Bay Area buildings are harder still.

Some carriers in California have quietly gotten less flexible about building age. They just don't love the 100-year-old buildings that are everywhere in San Francisco and up and down the Peninsula. And depending on the building's value, some now want to see a sprinkler system before they'll even quote.

Underwriters worry about the same handful of things. Old wiring. Old galvanized or cast-iron plumbing, which turns into water claims. Older roofs. And on the Peninsula and in San Francisco, seismic exposure. San Francisco's Mandatory Soft Story Program, for example, requires retrofits on many older wood-frame buildings with five or more units built over a soft or weak ground floor. Several other Bay Area cities have similar programs, and the rules vary by city. Underwriters notice whether that work has been done.

Some buildings fit comfortably with standard ("admitted") carriers. Others end up in the excess and surplus (E&S) market through a wholesaler. E&S isn't a bad word... it's where a lot of perfectly good older buildings get written. But the forms can be narrower and the terms different, so it's worth reading closely. We'll walk you through what's different before you choose.

How do you make an older building easier to insure?

Underwriters would much rather insure a proactive owner than a reactive one. They want to see updates done by licensed contractors, with permits, and a pattern of continued care, not a building that only gets attention after something breaks.

The owners who have the easiest time with an older building tend to do three things:

None of these make a 1920s building new. But they move it from "old building" to "old building that's well run," and that's a very different conversation with a carrier.

What will the underwriter ask for?

This is where I put my old recruiting hat back on. Placing a building is a lot like presenting a candidate. The underwriter is reading a resume, and the more complete and honest the resume, the better the conversation goes.

Have these ready:

A building with documented updates and a clean loss history is a very different submission than "it's older, I think the roof is fine."

Paul's take: the light well

In San Francisco it's very common that two older buildings will share a light well. One time the building next door to our insured caught on fire. The fire department broke down the door of one of the tenants in our customer's building, went through her living room window to get to the light well, and fought the fire next door from there. So when the tenant came home, her living room was trashed. Smoke, water, a broken window, a broken front door.

She called the landlord and said she wanted to file a claim, and the landlord called me. I had to explain that he doesn't have an insurable interest in his tenant's belongings. His policy fixed the door and the window. Her clothes and her furniture were hers.

So I talked to the tenant directly. I told her, "I'm not your insurance agent, but I'll help you." She collected estimates for cleaning her clothes and her apartment, we got the fire report to find out who owned the building next door, and she went after the neighbor's insurance. Eventually she got reimbursed.

But if she had had renters insurance, her own company would have taken care of her right away and then gone after the building next door themselves. That's why, as a landlord, you should always require your tenants to carry renters insurance.

The practical takeaway

If you own a five-plus unit building and it's insured on a landlord form, or you've never compared the valuation to how the building is actually built, it's worth a fresh look before your next renewal. Start gathering the checklist above about 90 days out. That gives us time to approach the right markets instead of scrambling.

You can see more about how we work with owners on our real estate investors page. When you're ready, send us the basics through our business quote form and we'll start the conversation. We'll tell you what we see, what we'd recommend, and why. The decision is yours.

Frequently asked questions

Does a landlord's insurance cover a tenant's belongings?

No. A landlord has no insurable interest in a tenant's personal property, so the building policy typically won't pay for a tenant's damaged clothes, furniture or electronics. That's what renters insurance is for, and many landlords require tenants to carry it.

What coverage do apartment owners most often miss?

Common gaps include too little business personal property for building-owned appliances like stoves, refrigerators, washers and dryers; loss of rents limits too low to cover the mortgage, taxes and income during a long rebuild; and no hired and non-owned auto coverage when handymen or janitorial workers drive on the owner's behalf.

Why is it hard to insure an older apartment building in California?

Some California carriers have become less flexible about building age, and older Bay Area apartment buildings often raise concerns about wiring, plumbing, roofs and seismic exposure. Depending on the building's value, some carriers now require fire sprinklers before they will quote.

How can I make an older apartment building easier to insure?

Keep seismic retrofit work current and documented, add or document fire sprinklers, make updates through licensed contractors with permits, and keep the building visibly well maintained. Underwriters prefer a proactive owner to a reactive one.

Can I insure a 5-unit apartment building on a landlord (DP-3) policy?

Generally no. Dwelling policies like the DP-3 are designed for one- to four-family homes, so a building with five or more units is typically written on a commercial habitational package policy instead.

What is loss of rents coverage for an apartment building?

Loss of rents (also called business income) replaces the rent you would have collected while units are unlivable after a covered loss such as a fire. It helps owners keep paying the mortgage and expenses during repairs.

Why do insurers care about seismic retrofits on apartment buildings?

Older wood-frame buildings with parking or open space on the ground floor (soft-story buildings) are more vulnerable in earthquakes. Underwriters often ask whether a retrofit has been completed, and in San Francisco many of these buildings are subject to a mandatory retrofit program.

What is the difference between admitted and E&S insurance for apartments?

Admitted carriers are licensed by the state and use filed forms and rates. Excess and surplus (E&S) carriers can write risks that standard carriers decline, often older buildings, with more flexible but sometimes narrower terms.

What documents do I need to quote insurance for an apartment building?

Typically a rent roll, year built and construction type, the years of roof, electrical, plumbing and heating updates, any seismic retrofit records, fire protection details, five years of loss runs, and who manages the property.