Do I need terrorism insurance for my apartment building?
Insurers must offer terrorism coverage under TRIA, and lenders may require it. The decision depends on property location, size, and proximity to potential targets.
Under the Terrorism Risk Insurance Act (TRIA, 15 U.S.C. § 6701, originally enacted in 2002 and reauthorized through the Terrorism Risk Insurance Program Reauthorization Act of 2019), commercial property insurers are required to offer terrorism coverage to policyholders. Apartment owners can accept or decline this coverage. The terrorism endorsement covers losses from certified acts of terrorism as defined by the Secretary of the Treasury in consultation with the Secretary of Homeland Security.
Most standard commercial property policies exclude terrorism-related losses unless the terrorism endorsement is added. The TRIA endorsement typically adds a modest cost to the premium, often a few percent of the total property premium. Some lenders require terrorism coverage as a condition of the loan, particularly for larger properties or those in major metropolitan areas. Fannie Mae's Multifamily Selling and Servicing Guide (Part III, Chapter 6) requires terrorism coverage on all DUS loans, and Freddie Mac's Multifamily Seller/Servicer Guide (Chapter 58) imposes a similar requirement for its loan programs.
The risk assessment for terrorism coverage depends on several factors: the property's proximity to iconic landmarks, government buildings, or other potential targets, the property's size and visibility, the metropolitan area in which the property is located, and the cost of the endorsement relative to the potential exposure. For apartment buildings in major cities or near high-profile targets, terrorism coverage provides meaningful protection at a reasonable cost. For properties in suburban or rural areas with no proximity to potential targets, the risk is lower, but the endorsement cost is also typically very low.