Investing the time and money required to maintain and cultivate a positive working relationship with your tenants can make all the difference between amicably settling disagreements and a costly lawsuit. For this reason, tenants’ insurance is a win-win for landlords, owners and tenants and may prevent a great deal of conflicts in the long run.
For the landlord, this serves as an additional layer of protection from costly litigation. Tenants that have this coverage are less likely to sue their landlords to compensate them for a loss. Even if a landlord prevails in court, there are still costly legal costs involved.
For tenants, being required to purchase their own insurance policy is the only real way to protect their possessions if the unexpected should occur. In addition, this can reduce the number of claims on your insurance policy, which is extremely important in terms of premium costs in today’s hard market and strict underwriting environment.
Let’s consider a fire caused by a tenant results in extensive damage to one of your properties. Here is how a tenants’ insurance can make all the difference in an already stressful situation:
Property Damage & Repairs: While you may think your property insurance coverage will cover the associated costs, most landlords’ property insurance policies will not cover damages caused by residents. Even if a lease clearly holds tenants responsible for the full cost of any damage they cause, it can be extremely difficult for property managers to collect on that obligation, often resulting in costly legal fees. One of the top benefits of requiring tenants to purchase tenants’ insurance is keeping landlords and managers out of court.
Personal Property & Displacement: Tenants’ insurance would cover both their temporary housing costs and their property damage. If damage occurs to a tenant’s belongings, most likely they will try to claim some type of landlord responsibility. Aside from contents, tenants may also have invested money to paint apartment walls, add cabinets or improve lighting fixtures.
For low premiums overall, tenants can have their personal belongings and liability covered. According to the National Association of Insurance Commissioners (NAIC), the average cost of a tenants’ insurance policy ranges between $15 and $30 per month. This is quite inexpensive compared to the cost of replacing everything in an apartment.
Additionally, family heirlooms, jewelry or collectibles can also be protected by an additional rider at a modest extra cost.
Often, tenants may have to be relocated while repairs are made to the building, which could take months. If a fire or storm makes a living space uninhabitable, many tenants’ policies will pay for hotel and restaurant bills until repairs are completed.
Managing an insurance requirement may seem cumbersome and time-consuming; however, property managers and tenants have more options than ever before that make this practice more attractive and attainable.
In some instances, the landlord’s commercial insurance broker can design a tenant insurance offering that provides the landlord with attractive incentives, while streamlining the insurance purchasing and lease agreement process for tenants.
In addition to mandating tenants’ insurance, landlords may also want to consider the following when it comes to amending their tenant lease agreements to minimize liability and avoid indirect damages:
Create a common lease agreement for all tenants whenever possible. Having a single lease agreement means that all tenants will know what to expect and adhere to the same set of rules especially when it comes to insurance/indemnification/hold harmless clauses. While concessions and additions may arise and larger spaces will garner higher fees, a single tenant lease agreement will reduce headache and potential liability.
Be intentional with rental abatement wording. After a covered loss that causes physical damage, it will take a prescribed amount of time before the facility is back up and running. The rental abatement clause determines whether a tenant can suspend full or partial rent payment until its space is repaired. Closely examine the wording on rental abatement in your tenant leases.
Unfortunately, damages caused by tenants are bound to happen, but there are smart and affordable options for mitigating these risks and financial setbacks for tenants and owners.
Speak to your insurance advisor about putting together a tenants’ insurance program for your properties today and learn more about the benefits of doing so.
Hub International Northeast