What Insurance Do Lenders Require on Commercial Real Estate?

What Insurance Do Commercial Lenders Usually Require?

Most lenders want the building insured to rebuild it, the lender named on the policies, deductibles you can actually pay, and coverage for flood, wind, liability and lost rents. The exact list is in your loan documents.

These are typical lender insurance requirements, not universal ones. Bank loans, agency multifamily loans (Fannie Mae and Freddie Mac) and CMBS loans each have their own rules, and each loan agreement can add more.

Why Do Lenders Insist on Replacement Cost?

Because the building secures the loan. If it burns, the lender wants enough money to rebuild, not a payout reduced for depreciation. So most lenders require coverage on a replacement cost basis, at or near the full cost to rebuild.

Agency rules show how specific this gets. Freddie Mac's published Multifamily Seller/Servicer Guide (Chapter 31, Guide Bulletin update of August 25, 2026, as we checked it in October 2026) requires replacement cost coverage, though roof coverings may be on an actual cash value basis. It requires at least 100% of insurable value for a property with one residential building, or 90% for several buildings. It also requires either no coinsurance clause or one offset by an agreed amount provision (Freddie Mac).

Bank and insurance-company loans may word it differently, but the idea is the same. A coinsurance clause without an agreed value option often draws questions from a lender's insurance reviewer.

How Should the Lender Be Named on Your Policies?

Usually in three places. On the property policy, the lender is listed as mortgagee and often as loss payee. On liability policies, the lender is often an additional insured. And the named insured must match the borrowing entity exactly.

• Mortgagee. The mortgagee clause in most commercial property forms gives the lender its own rights, such as being included on claim payments and getting notice before cancellation. In some cases the lender can still be paid when your own claim is denied for something you did, if it meets the policy's conditions.
• Loss payee. A lender's loss payable endorsement (one of the options on ISO form CP 12 18) puts the lender on claim checks for the covered property.
• Additional insured. Many lenders ask to be added as additional insured on general liability, umbrella and excess policies.
• Exact wording. Lenders specify the precise name, the “its successors and/or assigns” wording and the mailing address. Copy it exactly.
• Notice. Many lenders require advance notice of cancellation. Freddie Mac's guide, for example, asks for at least 10 days for nonpayment or nonrenewal and 30 days for other reasons, unless state law requires otherwise.

What Is Evidence of Property Insurance (ACORD 28)?

It is a short form your agent issues to show the lender your property coverage. The ACORD 28 (Evidence of Commercial Property Insurance) lists the insurer, policy number, dates, property, limits, deductibles and the lender's interest. Liability is usually shown on an ACORD 25 certificate.

Evidence is a summary, not the policy, and the policy wording generally controls. Texas's certificate-of-insurance law, Insurance Code Chapter 1811, does not apply to evidence of property insurance that a lender requires for a mortgage or lien (Tex. Ins. Code §1811.002). Your loan documents and the policy itself are what count. Many lenders also ask for a full copy of the policy after closing.

What Deductibles Will a Lender Accept?

Most loan agreements cap deductibles. The cap often depends on the property's value or the loan size, with separate rules for wind, named storm, flood and earthquake.

For example, Freddie Mac's guide (as checked in October 2026) caps the all-risk property deductible at $50,000 per occurrence when a property's insurable value is under $10 million. The cap is $100,000 at $10 million or more, and $250,000 under a blanket limit shared by several properties. Wind and hail, named storm and flood each have their own tables.

The Texas trouble spot is the percentage deductible. A 2% wind and hail deductible on a $5,000,000 building is $100,000, which can exceed a lender's dollar cap. On the coast, a named storm deductible can be larger still.

If no deductible that meets the cap is available at a reasonable cost, ask the lender for a written exception. Some loan programs allow one under set conditions.

When Does Federal Law Require Flood Insurance?

When a building that secures a loan from a federally regulated lender sits in a FEMA Special Flood Hazard Area in a community where NFIP flood insurance is available. These areas are flood zones beginning with A or V. The rule is at 42 U.S.C. §4012a.

• Minimum amount. At least the outstanding loan balance or the maximum NFIP coverage available for that type of building, whichever is less. If contents also secure the loan, they need flood coverage too.
• NFIP maximums. Through the National Flood Insurance Program, non-residential buildings can get up to $500,000 for the building and $500,000 for contents (FEMA). Apartment buildings with five or more units can get $500,000 for the building and $100,000 for contents (FEMA).
• Private flood can count. The law requires regulated lenders to accept private flood policies that meet its standards.
• No 30-day wait at closing. The usual NFIP waiting period does not apply when coverage is bought in connection with making, increasing, extending or renewing a loan (FloodSmart).
• Lenders can require more. Freddie Mac, for example, asks for flood limits based on the value of the building's first two floors above grade and any floors below grade, plus 12 months of rents or business income and the borrower's contents.

What Other Coverage Do Lenders Ask For?

Beyond property and flood, lenders usually want wind, lost rents, liability and sometimes coverage for key equipment. Requirements grow with the property and the loan.

• Wind and named storm. Wind must be covered. In the TWIA coastal area, that may be a separate policy. TWIA eligibility generally requires a windstorm certificate of compliance for work done on or after January 1, 1988, so start on it early (TWIA). Our TWIA guide explains more.
• Rents or business income. Twelve months is a common requirement. Freddie Mac's guide, for example, accepts 12 months of actual loss sustained, 12 months of effective gross income, or an amount from a completed business income worksheet. See loss of rents.
• General liability. Usually on an occurrence form. Freddie Mac's guide requires commercial general liability limits of at least $1 million per occurrence and $2 million aggregate, plus umbrella limits that grow with the number of units.
• Equipment breakdown. Some lenders require equipment breakdown coverage when the building has boilers or other major systems.
• Insurer rating. Lenders often set a minimum AM Best rating. Freddie Mac's guide requires A- or better, except for state-sponsored programs and NFIP policies.
• Construction loans. Expect builders risk requirements during construction. See builders risk.

How Do You Read a Lender's Insurance Requirements Letter?

Go through it line by line with your agent as soon as you receive it, ideally well before closing. Turn each requirement into a yes, a yes-with-cost, or a no.

1. Find the exact names: the borrower (the named insured) and the lender's mortgagee and additional insured wording.
2. List every required coverage and limit, including how many months of rents or business income.
3. Write each deductible cap next to your actual deductible in dollars.
4. Check flood: the zone determination, the required amount, and whether private flood is accepted.
5. Note the insurer rating, notice of cancellation and policy term requirements.
6. Note what proof is due and when: evidence (ACORD 28), certificates, the full policy and proof of payment.
7. Ask your agent to mark each line as met, can be met (with the cost), or not available.
8. Get any exception from the lender in writing before closing.

How Do You Avoid Force-Placed Insurance?

Make sure your lender never sees a gap. If your coverage lapses or doesn't meet the loan terms, most loan agreements let the lender buy insurance and charge you. This is called force-placed insurance.

Force-placed coverage usually protects mainly the lender, and it often costs more than a policy you would buy yourself. For flood in high-risk zones, federal law sets the process. The lender must notify you, and if you don't get enough coverage within 45 days, it must buy it and may charge you. If you later show you had coverage, the lender must cancel the force-placed policy and refund the overlap.

• Send renewal evidence to your lender or servicer before the policy expires.
• Make sure the lender's name and loan number appear on every renewal.
• If you finance premiums through a premium finance agreement, keep payments current. A cancellation for nonpayment can trigger notice to your lender.
• Tell your agent and lender right away about a sale, a vacancy, a new building or a change of insurer.
• If you get a force-placement notice, act fast: send proof of coverage and ask for the charges to be removed.

What Should You Do Next?

1. Ask your lender or loan broker for the written insurance requirements as early as possible.
2. Send them to your agent, along with the exact borrowing entity name.
3. Order a flood zone determination and decide on flood coverage early. Our commercial flood guide can help.
4. Convert every deductible to dollars and compare it with the lender's caps.
5. Confirm how evidence (ACORD 28 and certificates) will reach the lender before closing.
6. Put your renewal dates on the calendar with a reminder to send evidence to the servicer.
7. If you'd like help reviewing a requirements letter, contact us or request a quote.

Questions Owners Ask

Sources

1. 42 U.S.C. §4012a — Flood insurance purchase and compliance requirements (Cornell LII)
2. Freddie Mac Multifamily Seller/Servicer Guide — Chapter 31, Insurance Requirements — Guide Bulletin update 08/25/26; an example of agency requirements
3. FEMA — NFIP summary of coverage for commercial property
4. FloodSmart — Buy a flood policy (waiting periods)
5. Texas Windstorm Insurance Association — Windstorm certification
6. Texas Insurance Code §1811.002 — Applicability of the certificate of insurance chapter
7. FEMA NFIP bulletin W-13070: June 1, 2014 program changes — Other Residential (5+ unit) limits: $500,000 building, $100,000 contents