One of the most important reasons landlords hire a property manager is to help limit exposure to and manage the inherent risk of owning rental property.
In the event of a fire, who would be responsible for paying for all damages caused by the loss of the tenant’s belongings or bodily injury?
The tenant could ask the landlord to cover all medical expenses. The landlord would be liable for thousands of dollars in damages. Renter’s insurance adds an extra layer of protection, limits your liability, and provides peace of mind since no one can predict the future. Here are some reasons why you should have renter’s insurance.
You are covered for so much by your renter’s insurance. In addition to covering the tenant’s belongings in case of a natural disaster or theft, it can also cover pet damage and relocation costs. In the event that your property becomes uninhabitable, renter’s insurance will cover the tenant’s expenses for finding new housing while the building is being repaired. Additionally, it helps you find responsible tenants. Those tenants who are willing to spend a little more each month to cover their belongings are caring. Finally, renter’s insurance is very affordable these days, costing an average of $10 per month.
Often, questions arise as to why it’s important to add the property manager as Additional Insured on the Landlord’s insurance policy. Some of the key questions are addressed below.
Why should I list my Property Manager as Additional Insured on my Insurance Policy?
An increasing number of experienced and well-informed management companies require the owner to add the property management company as an additional insured to their owner’s policy. Even though it is often overlooked for convenience or misinformation, it is a very important element of an overall risk management strategy not just for property owners but also for property management companies.
Can’t My Property Manager Get Their Own Insurance?
In the case of an additional insured property manager, you may wonder why they don’t just get their own insurance. This question is frequently asked, and the truth is that they do purchase two types of insurance to protect themselves in their job: general liability and errors and omissions. A general liability policy is purchased by most businesses and service providers to cover risks associated with their day-to-day activities. When it comes to E&O insurance, it will protect both you and your property manager if something goes wrong, like a tenant who is wrongfully evicted who later files a lawsuit.
What does “Additional Insured” mean?
Adding Additional Insured to a homeowner’s policy simply means that the coverage extends not only to the owner, but also to the agent or management company listed on the policy. There is some confusion between “Additional Insured” and “Additional Interest” among some insurance agents and property managers. Although they sound similar, they are vastly different. The term “Additional Interest” does not increase coverage, but simply informs the property manager when the policy is renewed, canceled, or changed. Another misconception is that the Additional Insured clause gives the property management company a financial interest. Property management companies do not have a financial stake in the property like mortgage holders, but nonetheless have a very insurable interest in the property, for example, if someone gets injured there.
Why is adding the Property Manager as Additional Insured important to the landlord?
It is common for property managers to assume most of the responsibilities of homeowners when they are hired. As a result, if something were to go wrong, such as personal injury, a lawsuit would often be brought against the Property Manager, not the owner.
It is for this reason that almost all reputable property management companies have a strong indemnification and hold harmless clause in their management agreement. As long as the management company is properly listed as Additional Insured, the coverage will automatically extend to both parties.
If a major litigation claim occurs, it is likely that both the Property Manager and the Landlord will be named as co-defendants. It would be possible to create a unified defense with the owner’s policy extending to both, simplifying the defense process and significantly reducing the amount of legal expenses that the owner (or the insurance company) is ultimately responsible for.
Why is the Additional Insured endorsement on the owner’s policy important to the Management Company?
Property Management firms typically carry both General Liability and Professional Liability insurance to protect themselves from financial losses caused by mistakes or wrongful acts on their part. They do not, however, cover matters relating to the home itself. As a result, the property manager may be subject to claims arising from accidents at the property, burglaries, fires, water leaks, etc. Through the Additional Insured endorsement, coverage can effectively be extended to the Property Manager.
In the absence of the Additional Insured endorsement, the management company would be left to deal with any losses directly with the owner (or their insurance) for reimbursement. Obviously, this alternative would be exponentially more expensive and time-consuming.
The Importance of This Decision
It is common for rental property owners to overlook the need for an additional insured property manager. Our experience is that when people make this mistake, something almost always happens that makes them regret their decision. Although your insurance coverage will protect you and your property, there is a loophole we strongly suggest you close as soon as possible. A property manager will also need protection against property-related legal claims since they are exposed to the same types of liabilities as you are. These can include:
- Damages tenants suffer due to fire, water, burglary, or other incidents
- Injuries sustained by the tenant or a guest on their property
- Other related incidents resulting in damages to a tenant
Should you fail to act to ensure this loophole is closed, the potential liability can wreak havoc on your real estate investments. In fact, it could reach the point where owning rental property could become too risky and financially unreasonable, so don’t let things get to this point.
Are Insurance Companies willing to add the property manager to the landlord’s policy as Additional Insured?
Larger insurance companies understand that adding the property management firm is in their customers’ best interests and will do so for little or no additional cost. Some smaller or specialized companies, however, do not want to add a third party to their policy since they see it as taking on additional risk. While there may be some merit to their viewpoint, it can be argued that using a professional management company will reduce overall risk and that since the owner is indemnifying the management company, they would eventually be faced with a payout on behalf of their customer. Accordingly, their total cost of a payout could be significantly reduced if they are in control of the claim from the beginning.
Helpful Tips for Setting Up Insurance For Your Rental Property:
Ensure that your Insurance Agent understands that you are requesting that the Property Management Firm be added as “Additional Insured”, not merely “Additional Interest”.
You may have to pay an additional fee for the “Additional Insured” endorsement. Although there may be an additional fee, the overall cost effectiveness of your policy may still be better if there is one.