Why Tenant Damage is Typically Excluded from a Landlord's Policy
For many landlords, the exclusions in a standard landlord's policy can be a often overlooked yet crucial aspect of property management. This article aims to clarify why tenant damage is frequently excluded from these policies and explore the implications for property owners.
Understanding the Exclusion
It has come as a surprise to many landlords to discover that tenant damage is typically excluded from their insurance coverage. This exclusion is based on a fundamental principle of insurance: insuring against the expected outcomes of ownership, rather than all possible scenarios.
Insurance Exclusion: Much like comprehensive auto insurance, which covers catastrophic events (e.g., fires, explosions, or car crashes) but not everyday wear and tear, a landlord's policy is designed to cover significant and unforeseeable damages. Tenant damage, such as vandalism, excessive wear, or intentional destruction, is deemed a more predictable outcome of renting and, therefore, not insurable.
Why Tenant Damage is Not Insurable
The rationale behind excluding tenant damage from a landlord's policy is multi-faceted:
High Risk of Payments: Insurance companies aim to collect premiums without incurring significant payouts. Including tenant damage in a landlord's policy would significantly increase insurance costs, ultimately deterring many landlords from purchasing the policy.
High Costs of Coverage: Covering tenant damage is comparably more expensive to standard landlord insurance, much like how flood insurance is more costly in known flood-prone areas.
Expected and Preventable Damage: Tenant damage is often a natural and expected consequence of renting property. It's akin to the wear and tear on a car that comes with regular use, rather than unexpected events that require insurance.
Landlord's insurance is designed to protect against major incidents that can occur while the property is unoccupied, such as vandalism or natural disasters. These situations are more unpredictable and, therefore, worth covering with insurance.
Additional Considerations for Landlords
Given the exclusions in a typical landlord policy, there are several steps landlords can take to mitigate the risk of tenant damage:
Reviewing Other Company Policies: Consider the policies of other property management companies to understand the full spectrum of available coverage.
Developing a Strong Lease Agreement: Establish clear terms and conditions in the lease, including mandatory security deposits and moving out clauses that address damage.
Appraising Bond Strength: Increase the bond (security deposit) amount to cover potential damages beyond what could be recovered through the bond.
Personal Experience and Insights
My experiences as a landlord have underscored the importance of understanding these exclusions and strategies. Once, I was under the impression that including a property in a landlord's policy would adequately cover all possible damages. However, after discovering the limitations, I took proactive measures to ensure my investments were protected.
One instance involved letting a property sit vacant during off-peak seasons. While it seemed safe from the usual risks, I still checked on it regularly to prevent repeated repairs and costs. This approach not only saved time and resources but also reinforced the need for a solid risk management plan.
Another lesson was learning that insurers were willing to cover extreme scenarios, like a satellite falling through the roof, but not everyday wear and tear or intentional damage. This realization underlined the need for a more comprehensive approach to tenant behavior and property maintenance.
In conclusion, while tenant damage is a reality of property management, it is not insurable under a standard landlord policy. Understanding this exclusion and taking steps to mitigate the risks can help landlords navigate the complexities of property management successfully.