What insurance does my lender require for an apartment building?

From JM & ADA Associates · Updated October 16, 2026

Every lender writes its own requirements, and your loan documents are what you must meet. Agency multifamily lenders, Fannie Mae and Freddie Mac, publish theirs, and many other lenders follow a similar pattern. Below we summarize the main headings in Fannie Mae's Multifamily Guide, Part II, Chapter 5, as published when we wrote this (October 2026). Freddie Mac publishes its own requirements for its multifamily seller/servicers (Freddie Mac Multifamily: Insurance Compliance).

1. Property insurance at full insurable value

Fannie Mae requires property insurance for the whole loan term, written on a special-peril ("all risk") form, of at least 100% of the estimated insurable value for a single-building property (90% for multi-building properties). Insurable value means the cost to replace, repair or reproduce the property, excluding land. This is why lenders care about replacement cost, not purchase price.

2. Deductible limits

Lenders cap how high your deductible can be. Fannie Mae's guide lists maximum deductibles that depend on the type of policy and the property's total insurable value. A low premium bought with a high deductible may not be allowed.

3. Business income / loss of rents

Fannie Mae requires business income (rental value) insurance, generally based on 12 months of actual loss sustained or on the property's recent income, so the loan can keep being paid while the building is repaired.

4. Ordinance or law and equipment breakdown

If the property doesn't conform to current land-use law, ordinance or law coverage is required, to pay for undamaged portions that must be torn down and extra costs to rebuild to code. Buildings with a regulated boiler or pressure vessel need equipment breakdown (boiler and machinery) coverage.

5. General liability and umbrella

Fannie Mae requires general liability of at least $1 million per occurrence and $2 million aggregate, plus excess or umbrella coverage that grows with unit count, starting at $1 million for up to 250 units. See umbrella insurance for apartment buildings.

6. Flood, terrorism and other perils

If any building is in a FEMA Special Flood Hazard Area, flood insurance is required. Federal law requires it for federally backed loans on buildings in those zones (see FloodSmart). NFIP policies have per-building limits (see NFIP coverage types), so larger buildings may need excess flood. Fannie Mae also requires terrorism coverage and, depending on location, named-storm or earthquake coverage.

7. Co-op D&O and crime

For co-op borrowers, Fannie Mae requires directors' and officers' liability of at least $1 million, with a deductible of $50,000 or less. The guide also has fidelity/crime requirements. See board D&O explained.

8. Proof of insurance and the mortgagee clause

The lender needs evidence of insurance at closing. Fannie Mae lists ACORD 28 (evidence of commercial property insurance) together with ACORD 25 (certificate of liability insurance) as acceptable permanent evidence. The lender must be named correctly as mortgagee or loss payee on the property policy, and usually as additional insured on liability.

How to avoid a closing-day scramble

• Ask the lender for the insurance requirements as soon as you have a term sheet, and send them to your broker.
• Get a replacement cost estimate early. If it is higher than your current limit, the price will change.
• Check the flood zone of every building on the property using the FEMA Flood Map Service Center.
• Have the exact mortgagee name and address clause ready for the certificates.