How does Landlord insurance work?

Landlord insurance protects your property from damage while also protecting you from personal liability. Let’s look at a few examples of how landlord insurance works.

Property damage example: In the event a tree falls on your investment property, causing substantial damage, your landlord insurance can help pay for the repairs or rebuilding. Your property damage coverage has limits, so be sure you are aware of what they are and that you have adequate coverage. If you have a loss of income coverage, you may also be compensated for the rental income you will lose during repairs, which is a nice benefit.

Landlord liability example: If your tenant or a guest is injured in a fall at your property and the fall was a result of perceived negligence on the property owner’s part, such as an uneven walkway, a loose railing or a weak step on a stairway, you might have a liability claim on your hands. In this case, the person could file a claim against your insurance policy to cover the costs of medical care and other damages. Your landlord insurance can cover your expenses up to the limits on the liability portion of your plan, (after your deductible amount is met). You may not have been covered under this scenario with a standard homeowner’s policy.

Do I have to have a Landlord insurance and why is it important?

Yes, SJA Property Management, as well as all other professional management companies in the area, will require a landlord insurance policy be in place. Building fires, storms, vandalism, and liability claims are some of the critical things you want to be prepared for as a landlord. Property damage (flooding, fire, etc.) can happen and you need insurance to cover you, so that those costs ($5,000 or more) do not come out of your pocket. The same could be said of liability lawsuits that can be much more. The peace of mind is well worth the expense.

SJA Requirements and Terminology

SJA Property Management requires in our management contract that Owners maintain:
1. A valid landlord policy on the property.
2. SJA named as an Additional Insured on the policy.
3. The landlord policy has $1MM+ in liability coverage for single family homes and $500K+
for condominiums.

Why does SJA need to be listed as Additional Insured?

When a Property Management firm is hired, they perform various services on behalf of the homeowner. Property Management firms do not have a financial interest in the investment property. However, they do take on the same risk and liability as a homeowner. Like most reputable firms, SJA carries an Errors & Omission insurance policy and a General Liability insurance policy; these insurance plans offer protection from claims that are a result of the services provided by the Property Management firm. They do not offer any protection against matters concerning the investment property itself.

So, in essence, Property Management Firms assume all the liabilities of a homeowner because their insurance policies do not offer the same type of protection as a Landlord insurance policy – which covers the investment property. This leaves them vulnerable to claims and lawsuits arising from the property itself. Some examples of where the Property Management firm would not be covered by their insurance policy include someone injuring themselves at the property, burglary, fire, water leaks, etc.

What is the difference between Named Insured, Additional Insured and Additional Interest?

Named Insured
The term “Named Insured” refers to the owner of the insurance policy and it is the party listed on the Declaration’s Page. The “Named Insured” is the only party that has authority to make any policy changes, file claims, receive refunds and claim payments, cancel the policy, or make any other such modifications.

Additional Insured
This is probably the single most misunderstood insurance term. It is misused and misapplied on a regular basis. An “Additional Insured” is a party listed on an insurance policy that has some type of liability interest in the property. The “Additional Insured” has absolutely no right or authority to make any policy changes or to cancel the policy. Also, contrary to popular belief, an “Additional Insured” is ONLY afforded liability protection under the liability portion of the policy and there is no coverage whatsoever for physical losses resulting from such things as vandalism, theft, fire, wind and hail, and so on.

Additional Interest
An “Additional Interest” is nothing like the “Additional Insured” though they sound similar. An “Additional Interest” is a party listed in an insurance policy that has an “interest” in being notified whenever a policy cancels or has a major change made to it. In other words, this party is simply being made aware of the change – nothing else. There is absolutely no coverage whatsoever afforded to an Additional Interest.

As you can see, there is a big legal difference between these terms and having an interest listed incorrectly can have unintended and far-reaching consequences in the event of a loss, default, or other such situation. Your insurance agent should know the difference between these three terms, however, sometimes that is not the case and they may need to be educated.

Is Landlord insurance tax deductible?

Yes, you can deduct landlord insurance premiums on your investment property, including any landlord insurance policies on the building, contents, and liability. Because being a landlord is a business endeavor, your landlord insurance can be considered a business expense.

What type of insurance does SJA have?

SJA carries a $2MM Errors & Omissions policy and a General Liability policy, but this only offers protection from claims that are a result of the services provided by SJA. It does not offer any protection against matters concerning the home itself.

Tips when talking to your Insurance Agent

Most insurance companies can add a management company as an Additional Insured at no cost, however some may charge a small fee. If your insurance company charges for this service, or will not provide the correct coverage, we recommend you shop around with other carriers to find the right policy for your investment property.

Some of the Insurance providers that can add SJA Property Management as an Additional Insured:

• Allstate
• State Farm
• Farmers
• Metlife
• Amica
• Hartford
• America Bankers

Let’s recap why you need landlord insurance and why SJA Property Management must be listed as Additional Insured:

• Landlord policy helps protect from financial losses resulting from accidents, natural disasters, injuries and other liability issues associated with your rental property.
• SJA has a $2MM Errors & Omission Insurance policy (well above the national average) and a separate General Liability Insurance policy.
• It is very common for reputable Property Management firms to require a landlord to add the company as an Additional Insured; at least the ones with more knowledge and experience, which arguably would be the better ones as they understand risk and liability (which is the number one reason you hired a Property Management company in the first place).
• Not all insurance companies allow landlords to add their Property Management company as an Additional Insured.
• Not all insurance companies charge to add a Property Management company to the policy and in fact, many of them do not.

Disclaimer: It is always recommended that you speak to a local attorney to learn more about local real estate laws and how they can impact you and your home.