Rural Housing Service Simplifies Multi-Family Insurance Rules
Published Date: 4/20/2026
Rule
Summary
Starting May 20, 2026, the USDA’s Rural Housing Service is updating insurance rules for Multi-Family Housing loans and grants. These changes make insurance coverage simpler and more in line with what affordable housing projects usually need, helping borrowers understand and meet requirements more easily. If you’re involved in rural multi-family housing projects, expect clearer insurance rules that could save time and hassle.
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Analyzed Economic Effects
5 provisions identified: 1 benefits, 4 costs, 0 mixed.
Higher Deductibles, Caps by Coverage Size
Owners of USDA Rural Multi-Family Housing projects can choose larger hazard/property deductibles under the new rule, with specific caps: projects with coverage ≤ $1,000,000 may have deductibles up to $10,000; coverage > $1,000,000 and ≤ $2,000,000 up to $25,000; and coverage > $2,000,000 up to $50,000 per occurrence. The rule says allowing larger deductibles should make insurance premiums more affordable.
New Required Insurance Types
Applicants for RHS Multi-Family Housing loans and grants must meet new insurance requirements including Worker's Compensation (for permanent/part-time employees) and Business Income (rent loss) insurance. Worker’s compensation must be obtained before interim financing funds are made available or prior to loan/grant closing, and business income loss insurance is required upon completion of construction or rehabilitation when occupancy is possible.
Fidelity Coverage Raised and Deductible Cap
Fidelity (bonding) coverage for projects must be at least 25 percent of the project's operational cash sources per the proposed annual budget or $50,000, whichever is greater, and fidelity deductibles cannot exceed $15,000 per occurrence. The rule allows the Agency to reduce the bond with Agency approval if operational cash sources are substantially below the $50,000 minimum.
Minimum Property and Flood Coverage at 80%
Property insurance must equal the project's Total Estimated Reproduction Cost of New Improvements and, at minimum, not be less than 80 percent of insurable replacement cost value. Flood insurance coverage, when required, also must not be less than 80 percent of insurable replacement value or the maximum amount available under the National Flood Insurance Act, whichever is less.
Insurance Settlement and Agency Claims Rules
If an insurance settlement is $5,000 or less it is deposited in the project's general operating account; settlements over $5,000 must be placed in the reserve or other supervised account. The Agency may apply insurance proceeds to Agency debt when it is first lien, the property is deemed a total loss, all units are vacant/non-habitable, and tenants have been relocated under the Agency's disaster procedures.
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