How Property Management and Insurance Connect:
As the demand for real estate increases, the property management business in the United States has grown rapidly to fit meet that demand.
However, as financially advantageous as property management can be, there are recognizable risks involved in working within this industry. Much of the income potential for rentals and leasing companies relies heavily on trusting tenants to pay their rent.
In order to help cover the risks involved with property management, managers should consider various insurance types. Obtaining the right insurance is a key method making sure your company sticks avoids any unexpected stumbling blocks.
Keep reading to learn more about the best insurance for your business.
Who Needs Insurance?
Anyone who owns property that they lease or rent should obtain insurance, including those who personally manage or hire someone to manage their owned commercial or residential properties.
The rentals and leasing or management company must deal directly with these companies or residents, and must be in charge of deciding when to lease the property, and when to evict businesses or individuals.
Still not sure what you need?
CoverWallet's Insurance Checklist , you'll find a list of insurance types needed for your specific business or industry.
What Insurance Does a Rentals and Leasing Company Need?
The type of insurance rentals and leasing companies will need to purchase depends on the type of property they own, as well as how many individuals they employ.
Read on to get a better understanding of what you might need to become risk-free.
General Liability
A General Liability Insurance policy provides coverage for companies with a physical business location. As all rental and leasing agencies will have a physical location, this is an important insurance type to purchase. Specifically, this insurance policy will cover instances of property damage and personal injuries that occur on your business property. Although this will not cover renters or lessees, you will be not be liable for any personal injuries or property damage that occurs on properties that are under a rental agreement.
You’ll Need This When…
You first open your business. From the moment the first potential lessee or renter enters your business property, you will need coverage. This coverage will include rental properties before a lease or rental agreement has been signed.
For Example…
If a potential renter is injured while touring one of your properties, you will be liable for a personal injury claim. A General Liability Insurance policy will cover this instance.
Business Owners Policy
A Business Owners Policy, also known as a BOP, are combination packages for business owners who need several, important insurance products. A BOP will typically combine the features of two, very important policies: General Liability Insurance and Commercial Property Insurance. A combination of these policies will cover issues that involve personal injury, claims against your business related to false advertising and damage to your property.
You’ll Need This When…
You start managing properties, hire employees, or both. If you are working as a single individual and have not leased any of your properties, it is likely that none of these policies will matter. However, you will want to get this policy once your property management business begins to grow. A General Liability Insurance policy and a Property Insurance policy, in particular, will be of importance to you once you first lease a property.
For Example…
If you are in need of multiple insurance products, BOP can help cover several types of claims at once. For example, if a business’s customer is injured on a piece of broken sidewalk pavement running along your property, your business might be responsible for the claim. This type of claim would be covered by the General Liability feature of a BOP.
Errors & Omissions
There are several decisions a rentals and leasing company must make that may result in a claim. This includes the choice to evict a lessee, or to not rent or lease a property to someone. These types of decisions and several others can lead to a lawsuit against your business. Also known as Professional Liability Insurance, E&O Insurance is designed to protect a business when a lawsuit arises from a claim relating to a decision you or a surrogate made while providing services. As your service is related to leasing and managing properties, the type of claim will relate to how the property is managed. In both cases, your business may be on the hook for a legal complaint.
You’ll Need This When…
You plan on opening up a business. Individuals may decide to launch a suit against you if you decide not to lease your property to them.
For Example…
If a business leasing your property misses several payments on the lease, you may choose to cancel that lease. The tenant may believe your decision was flawed, improper, wrongfully motivated or based on discriminatory business practices. If the tenant sues for wrongful eviction, Errors & Omissions Insurance will provide resources to defend against the claim.
Workers Compensation
In most states, Workers Compensation Insurance is a requirement. All states in the U.S., except for Texas, require some amount of Workers Compensation once a company has employed a minimum number of employees. This could be as few as 2 or 3 employees. If you own multiple properties and hire several people to manage those properties, you may be required to have Workers Compensation Insurance.
Even if you are not required to purchase this policy, it is still a good idea to invest in it. Employees who manage your business operations could be at risk of injury, particularly when entering and inspecting properties that you own and manage.
You’ll Need This When…
You have the minimum number of employees as determined by your state’s business practice laws. Alternatively, you will need this if you have employees who are responsible for the general upkeep of your properties. This can include maintenance and cleaning crews.
For Example…
If a maintenance crew member falls from a ladder while cleaning the gutters on your property, he or she will likely qualify for Workers Compensation. If your business has this policy, the worker will work directly with the state’s Workers Compensation Board. However, if you do not have this policy, your injured employee may work with a Workers Compensation lawyer to get the money directly from your business.
Commercial Auto Insurance
The larger your property management business grows, the more vehicles you will own for management purposes. This includes trucks for maintenance and cars for your cleaning staff. If you or your staff members use the vehicles registered to your company, this is an important insurance product to own.
There are two reasons to consider this type of policy over a Personal Auto Insurance policy:
- Added coverage for when the vehicle is used for business purposes (not provided by a Personal Auto Insurance policy).
- You have employees who drive the vehicle(s) on a regular basis.
You’ll Need This When…
If a vehicle you own is either registered to your business or is primarily used for business.
For Example…
If an accident occurs with a company vehicle, a Personal Auto Insurance policy may not cover the claim, especially if the vehicle was used for business purposes . A Commercial Auto Insurance policy will cover this instance without the need to register every employee as a driver.
Commercial Property Insurance
Rentals and leasing companies rely on their properties to form an income. The physical state of those properties is absolutely essential for business. Commercial Property Insurance will provide coverage for your properties in case damage renders them impossible to rent or lease.
This insurance policy is important for two, essential reason:
- Coverage for income properties damaged as a result of natural or man-made disasters.
- Income loss coverage in case you are unable to draw an income due to damaged properties.
You’ll Need This When…
Your business owns any commercial property. It is impossible to predict when, or if, damage will happen. Commercial properties should be covered to help prevent any financial loss.
For Example…
If one of your rental properties is damaged by a fire, you will be unable to rent that property out until the house is repaired. Commercial Property Insurance is designed to provide compensation for repairs, and may provide coverage for the lost revenue potential in some circumstances.
Cyber Liability Insurance
Cyber attacks are on the rise. Even if your business is small, a cyber attack could result in stolen personal data from your customers. This should be a concern for all businesses, as almost all businesses now own or utilize digital data collected from their clients.
You’ll Need This When…
You first begin to collect data digitally from lessees. This can include bank account information, credit card information, or other personal information.
For Example…
If your business has a server housing private data, a hack attack could result in lessee data stolen. Your business would be directly responsible, even if you had safeguards in place. This does not include the potential problems you may have with compliance laws. Cyber Liability Insurance should help cover legal costs associated with these claims.
Additional Insurance Types to Consider
- Inland Marine Insurance: Property management can often involve having heavy loads of expensive building materials shipped across the country. Those materials can be protected with Inland Marine Insurance. This type of insurance helps protect property that may end up lost, broken or damaged due to an accident during shipping.
- Ordinance or Law Insurance: There are times when local or state building ordinances force you to make alterations to your buildings. These laws can result in costly payments that are both unexpected and beyond your control. Ordinance or Law Insurance provides coverage for those unknown situations that can sometimes surface only after accidents such as fires occur.
- Hired and Non-Owned Automobile Insurance: In many cases, you may need to use a personal vehicle not registered to your business for business purposes. This can be anything from driving to a rental property to address a concern, or driving to showing for a potential lessee. Commercial Auto Insurance or a Personal Auto Insurance policy will not cover any claims after accidents occur. Non-Owned and Hired Automobile Liability Insurance covers accidents that occur when either you or an employee gets in an accident with personally owned vehicles that are used for business purposes.
How Much Does Insurance Cost?
Insurance costs for rentals and leasing companies can vary. The size of the properties and the number of properties will have a direct impact on how much insurance you will need to purchase. To insure you purchase the right amount of insurance, it is important to obtain a professionally-crafted quote. This will help you get the right amount of insurance for your specific needs.