What Happens When an Apartment Building Is Underinsured?
- Nate Jones, CPCU, ARM, CLCS, AU
- Jan 21
- 2 min read
Many apartment building owners don’t realise they’re underinsured until they file a claim. Being underinsured means your apartment property insurance limits are too low to fully repair or rebuild your building after a loss. This can create serious financial consequences that impact cash flow, property value, and long‑term ownership.
Here’s what apartment owners should know about the risks of underinsurance.
Reduced Claim Payments Due to Coinsurance
Most apartment property insurance policies include a coinsurance clause, which requires owners to insure the building to a certain percentage of its replacement value, commonly 80% to 100%. If you’re underinsured, insurers may reduce your claim payment even if the loss is covered.
Out‑of‑Pocket Rebuilding Costs
When coverage limits fall short, the remaining repair or rebuilding costs come directly out of pocket. Rising construction, labour, and material costs make this gap even larger today.
Older buildings are especially vulnerable due to required upgrades to meet modern building codes.
Inadequate Loss of Rental Income Coverage
An underinsured building may also have insufficient loss of rental income coverage. If tenants must move out during repairs, the policy might not replace lost rent for the full repair period, straining cash flow and debt service.
Lender and Refinancing Issues
Most mortgage lenders require properties to be insured to full replacement cost. Underinsurance can place loan agreements in default, delay refinancing, or cause issues during property sales.
Higher Long-Term Insurance Costs
Once an underinsured loss occurs, insurers may increase premiums, restrict coverage, or decline renewal altogether, making future insurance harder and more expensive.
How to Avoid Being Underinsured
Apartment owners should:
Regularly update replacement cost valuations
Review coverage limits annually
Add ordinance & law coverage
Work with agents who specialise in apartment buildings
Protect Your Apartment Building With the Right Coverage
Avoiding underinsurance requires guidance from a multifamily insurance specialist. Wexford Insurance works with insurance companies that insure apartment buildings nationwide, helping owners secure proper coverage limits and avoid costly mistakes.
👉 Request your apartment building insurance quote today at Wexford Insurance
