One of the best reasons to hire a Property Manager is to help with managing the inherent risk of owning rental property as well as limiting exposure that goes along with ownership. Property Managers typically perform a variety of services on behalf of the owner. Generally, they have no financial interest in the property however, they do take on risk and liability as if they are the homeowner. While Property Managers already carry a lot of insurance on their own, it often doesn’t extend to the actual house or issues surrounding it.
What kind of insurance does a Property Manager have?
Like any business in the service industry, Property Managers typically carry professional liability insurance (sometimes called Errors and Omissions, or E&O, insurance). This protects both the Manager and the client from financial losses directly related to a mistake on the Manager’s part. Examples might include wrongful eviction, hiring unlicensed contractors, or other actions specifically related to the industry.
In most cases, a Property Manager will also carry general liability insurance, which covers the day-to-day business operations of a company, regardless of industry. It is important to note the differences between the two, as E&O insurance only covers the specialized services offered by the Property Manager, while general liability only covers routine business matters. These policies don’t offer protection from claims that arise in protecting your home, leaving the Property Manager vulnerable to potential lawsuits and claims for events like fires, burglaries, leaks, and etc., just top name a few of the very many!
What does Additional Insured Mean?
If you are working with an experienced property management company, chances are you’re going to be required to add them as an Additional Insured. Why? Because its just smart business and a good risk reduction policy. If you’re not required, RUN…YOU’RE AT RISK.
That said, when discussing coverage with your insurer, please make sure you understand the policy terminology. There is a BIG difference between Additional Insured and Additional Interest. In simple terms, Additional Insured extends your coverage to the Property Management Company, whereas an Additional Interest is simply a method to notify them that you retain coverage. Your Property Management Company, although having no financial interest in your property, has a very real, insurable interest in the terms of liability sustained on the premises.
The Importance of this Decision.
In many situations, rental property owners fail to think an additional insured property manager is necessary. When this mistake is made, something almost always happens that makes them regret their decision. While your insurance coverage will protect you and your property, there is a loophole we strongly suggest you pay attention to and close as quickly as possible. Since a property manager is exposed to the same types of liabilities as you are as the property owner, they will also need protection against property-related legal claims. 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.
How to add your Property Manager as an Additional Insured.
Most insurance providers are willing to add the property management company as additional insured upon request. The insurance carriers who charge additional for this and see it as additional risk simply don’t do enough of these rental policies, and you are better off finding a new provider. The major carriers and agents who understand real estate investments see the additional insured property managers as a reduction of risk and will often give discounts because of it.
At Real Property Management Prestige, we know first-hand the importance of being listed as Additional Insured and as the owner of a Property Management Company. This is a requirement of our rental property owners, that is signed to as part of our Management Agreement, because it is an important part of risk management, and is in the best interest both our clients, the property owner, and ourselves, the property management company.
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