So, what is the difference between a Landlord Insurance Policy and a Renters Insurance Policy? And why are we talking about this issue?
After 30 years in the property management business, I have seen firsthand the benefit of having insurance for a rental property, from the resident side as well the landlord side. I have also discovered that as a property management company it is our duty to talk about having proper insurance in place as most landlords and residents think about getting a policy but don’t get around to doing so until it is too late.
Why does this even concern you as property management company?
The simple answer: it’s because you can be on the hook as well for damages, costing you thousands of dollars or leaving you bankrupt.
There is a difference between a homeowner policy and a landlord policy, make sure your landlords have the correct policy in place.
A homeowner policy covers the dwelling and the items in the dwelling. This policy is typically more expensive. Landlord insurance is a policy that landlords take out to protect themselves against financial losses on a rental property. This policy is usually less expensive than a homeowner’s policy.
Make sure your clients add these very important items to their landlord policy:
- Loss of Rents- this allows landlords to recoup loss of rent due to fire or water damage for the remainder of the lease agreement.
- Malicious Intent- this provides additional coverage should a resident maliciously damage a property. Normal wear and tear is not covered under this policy. This covers extensive damage to the tune of many thousands of dollars. The key here is to have extremely detailed documentation in writing, photos, or detailed video.
- Fire- this seems like a no brainer, but it’s often an add-on option to most landlord policies. Kind of like getting an earthquake policy for your home seems like a no brainer if you live in Earthquake country. However, most people don’t have this add-on option on their policy and are shocked to find out earthquake damage is not covered.
- Vandalism – This part of the policy protects you, the landlord, should someone break into the home while it is vacant. However, if the home is vacant for more than 30-days the policy will not cover the damage or the items stolen. It is important to have this coverage as most rental homes at one point in time will be vacant, even if for a few days or a couple of weeks while the home is being rehabbed for the next resident.
About 20 years ago, we had a plumber installing a new water heater in a rental property. While our plumber was sweating the copper pipes, he caught the insulation on fire and burned the house down to the ground.
Yes, I practice what I preach, and educate our landlords several times a year on the proper insurance to have in place. Thankfully our landlord took our advice. He had the proper insurance in place to cover his loss of rents and fire damage. All of our contractors are licensed, bonded and insured up to $1 million dollars, and thank goodness in this case.
The plumber’s insurance took care of the claim and rebuilt the house from the ground up. Because the landlord had the loss of rents insurance, he was reimbursed for his loss of rental income during the year it took to rebuild the home.
As a property management company that hired the plumber to complete the repairs, we could have been on the hook for the damage to the house. Thankfully, in this case, we were 100% protected because the landlord had proper insurance in place along with the contractor. The devil is in the details; make sure you don’t rent your property out with having the right insurance in place.
Renters insurance is a policy renters take out to protect their personal belongings while living in rental homes. It typically covers loss due to theft, fire, storm, and water damage.
Renters insurance is an inexpensive way for your residents to protect their belongings for as little as $5.00 a month. It not only takes care of replacing or repairing any of their loss or damaged property, but it also protects them against any damages they may accidently cause to other residents’ — or the landlord or owner’s — property.
Often, residents simply assume that the owner’s insurance will cover any losses they incur. However, when a resident moves into a property, the landlord policy protects the structure — but not the resident’s belongings. If your residents don’t understand why renter’s insurance is so important, it’s up to you, as a property management company, to educate them.
- Many residents think they don’t have enough property to insure or the property they so have is of so little value; therefore, they don’t feel it’s worth insuring. It’s within reason to assume that the typical resident of a 2-bedroom apartment has accumulated about $30,000 worth of belongings.
- Anyone injured on the resident’s insured property will be covered.
- If residents are forced out of their homes for some reason — such as fire or flood repairs or heating unit malfunction — their renter’s insurance will help them pay for lodging and living expenses.
- Insurance premiums tend to be inexpensive. Encourage residents to shop around for exactly what they need. Often, residents can bundle with other policies — such as car insurance — to help keep costs even lower.
Renters insurance allows your residents to protect themselves from unforeseen losses. But renters insurance ultimately protects the landlord and property management company as well.
- If a resident suffers property loss or damage and doesn’t have renter’s insurance, he or she may file a lawsuit against you in an effort to make you pay. And even if you win, you lose with legal costs.
- If a resident is at fault, his or her renter’s insurance will cover repairs to the property as well as for any other damaged property or injuries. Ensuring a resident has proper insurance can save the landlord from having to use their insurance and running the risk of their premiums increasing.
- Renters insurance can cover a portion of temporary relocation costs while a property undergoes repairs.
- Renters insurance reduces the likelihood you will have to take a resident to court to recover damages. The resulting costs of time spent, hassle, court and lawyer fees, on top of loss of rental income can devastate a new property investment business.
- Renters insurance can protect the resident-landlord relationship by reducing arguments over liability.
Renters insurance can reduce a landlord’s financial risk and protect his or her financial future. This is why many property management companies require residents to have renter’s insurance. Once you explain to residents the importance and benefits of renter’s insurance, they should be eager to comply. If not, you just weeded out a potentially bad resident. You should clearly state the rental insurance requirement upfront in the lease agreement, and you should check to ensure that residents keep up with coverage on subsequent lease extensions.
Accidents happen: True Story
A busy mom was getting ready to leave her two-story rental home for a few quick errands. She called her son down from playing upstairs and left. Little did she know that her son had been playing in the bathroom sink, pulled the drain closed and left the water running. When she returned several hours later, she walked into a giant mess. The ceiling in the kitchen was in her kitchen sink, and there was water pouring out of the ceiling…well, what was left of it.
This resident was on the hook for $5,000 in damages to the property which was the deductible the landlord had on their policy. Since the resident didn’t have a renter’s insurance policy in place (this was before we started requiring renters insurance), she had to make payments to the insurance company until the $5,000 was paid back. Additionally, since she didn’t have renter’s insurance in place, she had to replace all of her personal items that were damaged when the ceiling fell. You can bet that she obtained renters insurance the following day to protect against any further damage.
Insurance is required
At Management One Property Management (our property management company), we require all landlords and residents to obtain the proper insurances. Residents are required to name Management One an additional insured on the policy and must present the policy prior to receiving keys to the home. By naming Management One as an additional insured, we will be notified if there is a lapse in coverage. Residents must present a new copy of their insurance when they renew their lease as well and if they don’t we will place coverage and it now becomes part of their rent they pay each month.
By requiring from both parties, you as the property management company have added protection in ensuring the responsible parties are on the hook for damages and not you and your company.
Want to learn more about other policies and procedures to have in place to protect your property management company? Schedule a 20-minute chat with myself, Ron Sudman.