Property owners and their property management companies should share the responsibility of ensuring that their income-generating properties are insured. But where do you start? We’ll cover the types of rental property insurance you need as the owner, the different coverages your property manager should have, and the benefit of listing each other as “additional insured” on your respective insurance policies.
Knowing the Types of Rental Property Insurance
There are specific types of rental property insurance policies that are essential to have in place in preparation for the risks of owning a rental home. Other policies listed below are optional but should also be something you should consider, depending on your property type.
Landlord Rental Property Insurance
Landlord insurance is a must for income property owners. This type of rental property insurance features two coverage types designed for property damage and liability.
Property damage coverage should help you with the repair costs for the damage to the physical structures of the rental unit, such as when a fire damages your rental’s primary structure or when wind destroys the fencing. This coverage extends to the appliances or tools you use to maintain the property, such as lawn care equipment damaged by a hail storm.
Meanwhile, liability coverage protects you against expenses resulting from personal injuries that occur on the property. If a resident fell down some stairs with a poorly maintained handrail, for example, the insurance policy could protect you from having to pay their medical bills out of pocket.
Optional Insurance for Property Owners
You may also want to purchase additional policies for unforeseen accidents. Most insurance companies offer separate premiums for earthquakes, floods, vandalism, vacancy losses, and construction-related expenses.
It’s essential to know the risks specific to the location of your rental units, so you can determine which policies to get on top of your rental property coverage. For example, California homeowners and property owners are usually encouraged to purchase earthquake insurance since the risk in this region is higher.
Rental Property Insurance vs. Homeowner’s Insurance
Even if you already have homeowner’s insurance, this may not necessarily cover any income properties you rent out. Typically, owners purchase various types of rental property insurance because their standard homeowner’s policy only covers private residences occupied by the policyholder.
The other significant difference between these two types of insurance is the extent to which personal belongings are covered. With rental property insurance, only belongings used to maintain the property are covered (lawnmowers, power washers, tools, etc). Homeowner’s insurance protects most of the home’s belongings such as clothing, electronics, and furniture.
It’s important to note that neither policy covers collectibles, like art or high-value items, and expensive jewelry. Those items require special coverage. Additionally, your renters’ belongings won’t be covered by a homeowner’s or rental property insurance policy. Your renters would need to purchase renter’s insurance for this purpose.
Types of Insurance for Property Managers
Insurance for property owners focuses on the physical structure of a unit, maintenance equipment, and the welfare of people residing on the property. On the other hand, property managers can benefit from policies addressing the risks of faulty business practices.
Here are the insurance policies your property manager should have:
General Liability Insurance
Businesses across different industries carry general liability insurance to prepare for any possible litigation stemming from day-to-day business practices. For example, someone sues your property manager for copy infringement due to an image they used for marketing. In that case, their general liability insurance should be able to cover the legal expense.
Error and Omissions (E&O) Insurance
E&O insurance is a real estate industry coverage that protects against errors, inaccuracies, misrepresentations, and negligence. Let’s say the property manager accidentally lists the wrong school district on their marketing materials for your property. Then a renter chooses your property based on that information only to find it wasn’t true. If the renter were to sue, the E&O insurance would protect the property manager from financial losses.
Other Insurance Options for Property Managers
In addition to the necessary general liability and E&O insurance coverage, your property manager may consider purchasing the following policies:
- Tenant discrimination insurance: There are policies designed to protect a property manager against claims of discrimination or Fair Housing Act violations.
- Employment practices liability insurance (EPLI): A policy like this can help with legal expenses connected to employment law issues, such as wrongful termination and harassment cases.
Adding Your Property Manager to Your Policy
Since you and your property managers have a shared responsibility, it makes sense to add each other to your respective policies. You can extend your coverage to your property manager by adding them as an “additional insured” policyholder.
Suppose a resident trips over a poorly maintained walkway on your property and breaks their ankle. They could sue both you and the property manager for the damages. The liability portion of your landlord rental property insurance would protect you. But what if your property manager had notified you of the potential danger, and you simply hadn’t approved the corrective work yet? Your property manager won’t have to shoulder the financial burdens of a lawsuit if they appear as an “additional insured” policyholder under your insurance policy.
Typically, your insurance providers won’t charge an extra fee to add an “additional insured” policyholder.
Quick Tips for Insurance Best Practices
Here are five quick tips to help you make the most of your insurance for property owners:
- Hire a property manager who understands complex issues like insurance and knows how to balance coverage with costs.
- Purchase enough coverage to protect your assets based on their current value.
- If you own multiple properties, carry a liability limit per location rather than per occurrence. Doing so provides coverage for each property in the event of a natural disaster or lawsuit.
- Keep all property-related vehicles properly insured as well. Be sure to include maintenance trucks and other vehicles used to transport prospective renters to showings.
- Confirm that your property manager’s policies specifically cover issues like defamation, unlawful eviction, and invasion of privacy.
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