A tenant who has renters insurance may get help after a broken water pipe destroys his belongings. But landlords may also be grateful for that same policy, as it can be a first line of defense against claims related to the property and keep a claim off their record while avoiding a large deductible payment.
Barney Schwartz is Senior Vice President of Assured Partners, a Texas REALTORS® risk management partner.
He says renters insurance can not only cover property damage caused by the tenant’s negligence, such as from a house fire or water intrusion, but also injury claims that occur onsite. So if a tenant’s unauthorized pet bites a visitor, or a tenant and tenant’s guest get into a fistfight, the tenant’s policy could help settle some or all of a claim filed against the landlord and/or property manager.
While an aggrieved party may include the landlord in a claim, a legal determination of blame and who is responsible for paying damages would ultimately come down to who was negligent, Schwartz says. A tenant’s insurance would be primarily responsible for a settlement when the tenant is the negligent party.
How much and which circumstances the tenant’s insurance may cover depend on the policy the tenant purchases. In most cases, policies purchased directly from an apartment complex will typically only cover tenant-negligent property damage and not bodily injury. If tenants purchase it on their own, it should cover both, as well as coverage for their contents.
Another advantage of renters insurance is the potential availability of displacement funds in case an incident prevents the tenant from staying at home.
Conversely, if a tenant does not carry renters insurance, the landlord may face exposure.
Landlords can utilize companies that “force place” insurance if they do not receive proof of insurance from the tenant. That coverage may not be as comprehensive as what can be purchased by tenants, Schwartz says. In many cases it will not cover bodily injury claims to guests.
Landlord clients should have their own liability coverage as well. They should review the policies for any exclusions that may apply. Some policies may exclude dog bites or assault and battery, for example. Landlords should carefully read their policies and discuss them with their insurance providers to fully understand what is and is not covered.
Short-term landlords, including leasebacks, need appropriate coverage
Property management clients are not the only ones who benefit from insurance related to rental properties.
Consider a scenario where after a sales transaction closes, a buyer allows the seller to continue living in the house for a month before moving out. Then something happens to the property. Whose insurance covers it?
Not the seller’s, because the seller doesn’t own the house anymore. But the buyer could have a coverage issue as well. The buyer doesn’t live there, a requirement in the standard homeowners policy. The buyer most likely did not insure the home as a rental property.
Buyers can check with their insurance carrier to see if they could purchase temporary rental insurance or add a landlord endorsement to their homeowners policy during leaseback situations, Schwartz says. “There are many options to get coverage during this time,” he adds.
The owners of short-term rental (STR) properties should make sure they have appropriate coverage, according to Schwartz. They may be better served by a policy for landlords because they are renting to tenants. STR owners should speak with their insurance carrier to learn what coverage is available.
When it comes to how much coverage is sufficient for renters or for landlords who decide to require renters insurance, Schwartz notes that $300,000 or more in personal liability coverage instead of the more common $100,000 is only a minimal additional expense.