Insurance covering tenant damages

7 Replies

Hey guys, 

I have a friend who's getting moved by his job and is putting his home on the rental market.  His insurance company is trying to sell him insurance to cover tenant damages that is nearly as expensive, if not more expensive than his normal homeowner policy.  I have a 3/2 that I only a Fire and Tornado policy on.  I told him I check on BP for some backup, but that I thought the insurance company was trying to rip him off.  Does anyone have any thoughts?  Thanks in advance, AWebb

That I know of most general homeowner policies will not cover you for physical damages your renters may or may not do, that is what the security deposit should be for. You might make it a practice to visit your rental properties every once in a while to stay on top of your renters caring for the property and not wait until you have a $30,000.00 expense. If you hire a PM make sure they will make periodic walk throughs or inspecitions but put that in your rental or lease agreements. 

Just reading the Virginia Landlord Tenant Act and it says this, "Damage Insurance. A landlord may require as a condition of tenancy that a tenant have commercial insurance coverage as specified in the rental agreement to secure the performance by the tenant of the terms and conditions of the rental agreement and pay for the cost of premiums for such insurance coverage, obtained by the landlord, generally known as "damage insurance." As provided in § 55-248.4, such payments shall not be deemed a security deposit, but shall be rent."

This is separate from Renter's Insurance, the next clause in the Act.  I called USAA and Foremost and neither offer this type of insurance.  Does anyone actually use this? It sounds like a great option, a policy covering you if they don't pay the rent or break the lease terms or damage the property, and they have to pay for it.   If you do use it, where do you get it?    

I was an insurance broker in another life, and it is actually very common for a fire dwelling policy, which is intended to cover a rental property, to be more expensive than a primary homeowners policy.  The insurance company assumes that a tenant is not going to care for the property the same way the owner would.  It is considered higher risk so it carries a higher rate.  That said, your friend should approach a broker and quote alternative insurance carriers because it can vary significantly.  I would just caution against not disclosing it is a rental as if it is not written incorrectly, coverage could be denied in the event of a claim.  I hope that helps!

We represent a number of insurance companies, and I don't know of an company that will cover tenant damage. Basically, it's the insurance companies telling you that you need to manage the risk of tenant damage by vetting the tenant. I know, I know, it's not the easiest thing to do. But, it is important to understand the insurance company's standpoint, which is if they covered you for tenant damage your would have less of an impetus to do your due diligence, and that puts them in a bad spot. 

Thanks for the replies, but apparently I'm not asking the question correctly.  Does this product "damage insurance" exist in the insurance world?  I find it odd that the actual Virginia Landlord Tenant Act specifically says, "A landlord may require as a condition of tenancy that a tenant have commercial insurance coverage ... to secure the performance by the tenant of the terms and conditions of the rental agreement and pay for the cost of premiums for such insurance coverage ... generally known as 'damage insurance.'"  ... Yet the product apparently does not exist.  I was just wondering if it does, indeed, exist, and if anyone knows where to purchase it.  I think it's a great idea if, in fact, it is out there.  Especially as they say "generally known as..." which apparently no one actually generally knows about.   This is the 2011 edition of the Virginia Landlord Tenant Act, so it is not something that should be obsolete.  

It does exist, underwriting is a bit tight unless you have quite a few units. They don't want to insure someone that does not have an adequate spread of risk.

So with that being said they would want about 50 SFR. If it's apartments about 15-25 units (can be separate locations). For apts about $10 a month per unit. For SFR about $15 per month.

We represent it, but mainly for our larger owners where we can get extra pricing considerations, alongside with an aggregate based rent protect (meaning they limit their exposure to eviction). By larger I mean 1000+ units.

@Derek Lacy Thank you.  At least I know now why someone like me with less than 10 rentals cannot find any information on it.   While I do screen my tenants very well, I was just thinking this would be a great option to offer tenants, but not to be.