Why you should list your Property Manager as an 'Additional Insured' and the difference between a 'Homeowners' policy and a 'Business' policy
It’s becoming more and more common for Property Managers to require the owner to list them as an additional insured on their insurance policy. But why? What are the benefits?
What insurance policies should my Property Manager have?
Like any service industry, Property Managers often carry professional liability insurance. This insurance is designed to protect the Property Manager from claims against invasion of privacy, wrongful eviction, hiring unlicensed contractors, and other similar actions specifically related to the industry. Essentially, this insurance protects the tenant and owner from a financial loss that is directly related to a mistake made by the Property Manager.
Why does my Property Manager need to be added as an additional insured?
When a Property Manager is hired, they perform a variety of different services on behalf of the Owner. In general, the Property Manager does not have a financial interest in the home as they are not part Owner. However, they do take on the risk and liability as if they were a Homeowner. Assuming the Property Manager does carry General Liability insurance, this only offers protection from claims that are a result of the services provided by the Property Manager. It does not offer any protection against matters concerning the home itself.
So in essence, the Property Manager assumes all the liabilities of a Homeowner but their insurance policies do not offer the same type of protection as a Landlord/Home Owner insurance policy. This leaves them vulnerable to claims and lawsuits arising from the property itself. Some examples of where the Property Manager would not be covered by their insurance policy include someone injuring themselves at the property, burglary, fire, water leaks, etc.
A typical Landlord insurance policy will protect the Homeowner against claims arising from these examples, however coverage is not provided to the Property Manager through their General Liability Insurance. To solve this problem, many Property Managers now require the Landlord to add the Property Manager to their insurance policy as an additional insured which then extends this coverage to the Property Manager.
Tips when talking to your insurance agent
Special consideration needs to be taken when discussing this with your insurance company, as wording is very important. The insurance industry uses specific terminology and one word can make a big difference. Some insurance companies will offer to add the Property Manager as an additional interest, which is not the same as an additional insured. Additional interest essentially means they will notify the Property Manager of policy renewals, cancellations, or changes in coverage. It does not extend coverage. When talking to their insurance agent, the Owner needs to specify that they want their Property Manager added as an additional insured.
There are some insurance companies that do charge to add a Property Manager as an additional insured for a small fee. However, not every company does this and every insurance company is different. If your insurance company charges for this service, ask them what they charge and then shop around. Even though they may charge for this service, it may still be cheaper than other policies that do not charge to add the Property Manager as an additional insured.
Do note that most Property Managers will not offer to pay the difference in price to add them to the policy as most management companies require the Owner to provide this coverage at their expense. This is mainly due to the fact that there are insurance companies which do not charge for this service and ultimately the Homeowner chooses which insurance company they go with. If the Homeowner chooses a company that charges for this service, the Property Manager should not be penalized for that decision.
Here is a brief summary of why owners should list their property manager as an additional insured:
Yes, Property Managers should have General Liability Insurance, Yes, without a shadow of a doubt.
Yes, it is very common for Property Managers to require the Owner to add them 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 one of the main reasons you hired a Property Manager in the first place).
No, not all insurance companies allow Owners to add their Property Manager as an additional insured.
Yes, some insurance companies do charge to add a Property Manager as an additional insured.
No, not all companies charge to add a Property Manager to the policy and in fact, many of them do not.
No, your Property Manager will most likely not pay to have them added to your insurance policy as an additional insured because this is typically a requirement of the Owner.
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.
HOMEOWNERS VS. BUSINESS F.A.Q.
What is considered short-term renting?
In the insurance world, a property that is rented for less than 30 days at a time is typically considered short-term, as is a property in which the renter does not reside/live at the dwelling. Short-term rentals can be found on websites like HomeAway, VRBO, Airbnb, TripAdvisor, Vacasa, and many more. Many home insurance carriers have denied coverage if short-term renting was not disclosed by the insured.
Why does my homeowner's policy not cover my short-term rental?
All homeowner’s policies carry a “business activity exclusion”. In other words, any claim involving a “business activity” could rightfully be denied.
Is my short-term rental really a business?
Yes. More and more cities INCLUDING Santa fe are now requiring short-term rental owners to carry a business license. They have requirements for occupancy tax collection, like a hotel, and gross receipts taxes. None of these are requirements for a long-term lease rental.
I have a landlord policy and have been told this covers my short-term rental, is this correct?
Landlord policies can also carry a “business activity” exclusion. Landlord policies are written for landlords, not business owners. A long-term lease rental is not a business. Let’s use a liability example: A renter leases your home for six months. Two months later he/she “slips and falls” in the shower because there is soap scum built up on the tub floor. Does this liability fall on the landlord? No, of course not, it’s the tenant’s responsibility to keep a clean tub. Now, the same situation but with a vacationer renting a home for a week. You better believe it’s the property owner’s responsibility to keep a clean tub. The vacationer assumed they were renting a clean/safe property; no different than a hotel. The liability falls on the property/business owner.
How do I get covered for business activity?
You buy a business insurance policy. You want it to cover your business property (rental home/contents), business liability, and the business income it generates.
If I insure my short-term rental as a business, can I also stay there?
Yes. Depending on the insurer you choose, there are no standard occupancy restrictions on a business policy. This means the property is insured while you stay there, friends or family, and of course paying guests.
If you need a recommendation on a good insurance company that specializes in the vacation and short term rental industry, we suggest Proper Insurance.