Student Housing Insurance: What’s so Different?

Summary

Uncover the key details you need to know about student housing insurance. Learn about coverage, exclusions, and tips to increase safety and reduce premiums.

Student housing insurance is a popular real estate investment segment but one that requires careful planning when it comes to insurance. Working through all the details can be challenging, especially for new landlords catering to student tenants.  While there are many similarities with homeowners or landlord insurance policies, off-campus university housing, due to the unique risks associated with student occupancy, creates some obstacles and nuances when searching for and selecting a comprehensive insurance program.  A greater understanding of student housing insurance, including eligibility issues as well as what it covers and excludes, can save you from potential financial pitfalls in the future. Let’s go back to school and dive into this topic to learn more!

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Table Of Contents:

• Understanding Student Housing Insurance
• What’s Included in Student Rental Insurance
• Typical Exclusions from Student Rental Insurance
• Extra Requirements from Student Rental Insurance Companies
• The Vacancy Problem and Solution
• Will Homeowners Insurance Extend to a Student Living at School?
• Cost of Student Housing Coverage
• Conclusion

Understanding Student Housing Insurance

The insurance landscape can be tricky at times, particularly when it comes to specialized policies such as student housing insurance. This coverage is tailored for residential rental properties that house students. While student housing can be a very attractive and stable investment class, it nonetheless brings with it some unique risks when it comes to underwriting insurance policies.  You may have come across the fact that many companies will not write landlord insurance where the properties are occupied by students, particularly where the co-eds make up a meaningful percentage of the leases. Fortunately, there are

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national carriers and more specialist companies that will accept student housing properties — with some caveats of course!

Risks Unique to Student Occupancy

While you can be very fortunate and have responsible tenants, the risks associated with student occupancy still vary in type and severity. For example, an increased rate of accidental damage to the dwelling may occur due to negligent attitudes towards maintenance among some tenants, or an increased likelihood of property deterioration due to high turnover rates (either annually with each school year or as students graduate and relocate) compared to traditional rental properties.  On top of this, there is typically a vacancy period between semesters, and depending on the length this can present several key exposures, like frozen pipes and significant water damage, that vacant properties may give rise to.

Coverage through Specialized Programs

To tackle these specific concerns, several insurance companies have developed proprietary programs offering important coverage specially designed for those involved in the business of off-campus student housing.  Specialist insurance companies understand the unique risks associated with student housing when analyzing the property for potential coverage and are therefore able to make both underwriting adjustments and structural changes to the policy form to reflect this unique asset class.

What’s Included in Student Rental Insurance

Student housing insurance policies offer comprehensive coverage for the unique risks that come with renting student housing. The components of student housing insurance — dwelling, personal property, loss of rent and personal liability coverages — are often similar to the protection that would be provided under a typical landlord insurance policy.  Here is a summary of what’s typically included under each part of the policy:

Dwelling Coverage

Similar to homeowners or rental home insurance, this part of your policy (insurance jargon: Coverage A) protects the physical structure of the rental property, including attached structures like garages, against damage caused by covered perils such as fire, windstorms, hail, and more.  Like standard policies, It’s important to insure your property at its replacement cost value, which means the cost to rebuild your home in its current location using similar materials without deducting for depreciation. In fact, in many cases, it’s important to obtain extended replacement cost which typically adds additional reimbursement of 25-50% on top of the actual cost to replace the property. This coverage enhancement can be critical where inflation and rising building costs factor in.

Coverage for the Landlord’s Personal Property On-Site

Landlords may leave personal items on-site, such as appliances and sofas (if it’s a furnished rental), which also need protection under their policy in case of damage due to insured events like fire damage or loss from theft. However, it’s important to know that tenant belongings are not included in this coverage. Instead, students must obtain separate renters’ policies for their own personal property — more on this later!

Liability Protection

In today’s litigious society (unfortunately), liability protection becomes an even more crucial component of any insurance planning strategy. Of course, in the context of student-occupied properties, the importance of this coverage is magnified further. If a student gets injured on your premises and decides to sue you for damages, this portion of your policy provides coverage — similar to the premises liability protection afforded under traditional landlord insurance.  Most carriers will offer this coverage in $100,000 increments, maxing out at $1.0 million. Given the risk discussed, it’s important to consider an umbrella insurance policy to extend this limit amount, particularly where you own multiple student housing units.  However, keep in mind that certain excess liability insurance companies may limit or deny coverage for student-occupied properties. You should carefully review your options and policies with a licensed insurance agency like Notable Risk which understands the dynamics of off-campus college housing.

Loss of Rents Coverage

If a covered peril such as a fire makes the rented unit uninhabitable (i.e. your tenants move out for a short or extended period) and causes a loss of rental income while repairs are being made, this aspect of the policy compensates you up to predefined limits set in the policy terms. Loss of Rents coverage provides compensation until tenants can move back into their units after necessary renovations have been completed. You can imagine the importance of obtaining this reimbursement given that a significant portion of your fixed operating and capital expenses continue even though your tenants have temporarily relocated and stopped paying rent.

Typical Exclusions from Student Rental Insurance

Under student housing insurance, it’s crucial to be aware that not all potential damages or losses are included in this type of coverage. Understanding these exclusions can help property owners manage their risks and expectations more effectively. Here are a few typical exclusions:

Negligence or Intentional Acts by Tenants

The majority of insurance companies will exclude any damage resulting from negligent behavior or intentional acts committed by tenants. This includes instances such as vandalism, misuse of appliances, and destruction caused during parties in your rental properties.

This exclusion amplifies the importance for landlords to enforce strict rules in their student housing rentals and ensure they’re adhered to diligently. It may also incentive landlords to consider requiring students to have renters’ insurance policies as an additional safety net against financial loss. In other cases, landlords may consider obtaining tenant legal liability insurance. In a nutshell, this coverage steps in to close a gap under traditional landlord insurance or student rental coverage where these policies often exclude reimbursement for damage to property or the dwelling caused by the negligent activities of tenants — e.g. they turned on the oven to cook on and left the rental unit, resulting in $100,000 in fire damage to the kitchen. Well, tenant legal liability insurance is designed to provide reimbursement for these tenant-caused damages — typically providing up to $100,000 in coverage to the property owner.

Pet-Related Damage

If you allow pets on your premises and they cause any form of destruction – whether chewing furniture or staining carpets – these costs typically aren’t covered under a standard student housing insurance policy.

To mitigate some potential repair expenses down the line consider incorporating a separate pet deposit into lease agreements when allowing pets in your rental units.

Floods and Earthquakes: Natural Disasters

Also similar to homeowners and landlord insurance policies, many natural disasters like floods and earthquakes fall outside typical coverage parameters unless specifically added onto policies at extra cost. These events could lead to significant structural damage and loss of personal property, which might result in substantial costs if not insured properly.

In regions prone to experiencing natural disasters frequently, adding specific coverages for them onto a student-housing package would likely prove beneficial despite the higher premiums involved.

Extra Requirements from Student Rental Insurance Companies

As mentioned before, there are many similarities between student housing insurance and standard homeowners coverage or rental home insurance policies. However, where they start to differ is in the requirements and obligations for property owners. Due to the unique nature of student-occupied properties, there are additional prerequisites that owners must meet to ensure their rental property is adequately covered under most student housing insurance programs.

Mandatory Written Leases

A written lease is not just a choice when it comes to rental agreements, especially in the case of student rentals. It’s essential as it outlines the responsibilities and expectations for both landlords and tenants involved during the tenancy period. It also establishes the legal framework for all tenants residing in the property, particularly when multiple individuals are sharing the same unit.

This legally binding instrument can shield you as a landlord against potential disputes and damages. Importantly, many insurance companies require proof of this agreement before they offer coverage for your income property.

The Role of Parent Guarantees

Since most students lack substantial assets or steady income available to cover significant damage costs if damages occur, parent guarantees step in to provide important safeguards.

A parent guarantee ensures financial responsibility falls on the parents should their child (the tenant) fail to meet rent obligations or cause extensive damage beyond what the security deposit covers. This is another reason why the written lease becomes so vital in the student housing context because, without the written lease agreement, there would be challenges in creating and enforcing important parent guarantees.

The bottom line: with written parent guarantees that are based on signed leases, the chances of obtaining competitive student housing insurance are greatly increased.

Lease Agreement Length: The Longer the Better for Off-Campus Rental Properties

Leases alone won’t always be sufficient. Insurance companies often have concerns about short-term leases because they increase the likelihood of issues related to frequent tenant turnover and greater wear and tear on properties. This concern is especially heightened in the context of student housing, where residency typically aligns with the academic year. However, insurers may still require longer lease agreements, usually lasting at least 12 months or more, as they provide more stability and minimize risk factors such as property deterioration. These measures regarding lease agreements help insurance companies manage claims liabilities while ensuring policyholders adhere to best practices for maintaining safe and predictable businesses.

The Vacancy Problem and Solution

You may wonder how the insurance companies deal with the vacancy that naturally exists between semesters, or at the end of the school year.  Well, this again is one of the unique features of student housing that requires a specialist insurance company that understands these nuances so that they don’t become an impediment to coverage.

Vacant Student Housing between Semester or End of School Year

In the typical context of homeowners or landlord insurance, properties that are left vacant for 30-60 days or more often result in coverage exclusions. This means that certain claims, such as those related to frozen pipes or vandalism, may be denied if the property is not occupied by people and/or belongings. Unfortunately, due to the structure of academic calendars, there is usually a 30-60 day period when off-campus housing units remain unoccupied. This can occur during semester breaks when students work, travel, or spend time with family and friends. If this vacancy period does not fall between semesters, it often then happens at the end of the school year when most students have left for summer break (except for those attending summer school).  Needless to say, there are ample situations that may give rise to vacancy conditions as the norm when you operate student housing properties.

The Vacancy Solution for Student Housing Insurance

The insurance company that specializes in student housing offers policies that accommodate vacancies during semester breaks, summer vacations, and move-in or move-out periods. Some carriers even provide vacancy endorsements specifically designed for these situations. In most situations, an experienced third-party property management company that implements safety measures, winterization programs and the like, goes a long way to help underwrite the vacancy risk associated with these types of properties.

It is important to note, however, that although some insurance companies understand the unique challenges of insuring student rental properties with occasional vacancies, it is always recommended to carefully review your policy and seek guidance from a licensed insurance professional who can help with the details.

Will Homeowners Insurance Extend to a Student Living at School?

As a property manager or student rental owner you may have been asked by a college student if he or she needs to obtain renters insurance given that they may have coverage under their parents’ policies. The question of whether homeowners insurance will extend its coverage to students living away from home for school is often surrounded by a bit of complexity (and not always perfect clarity!). The answer primarily hinges on several factors such as the student’s enrollment status, their housing location, and specific terms in the parent’s homeowners insurance policy.

Distinguishing Between Full-Time and Part-Time Students

An essential factor that influences whether a student remains covered under their parent’s homeowner’s insurance policy revolves around their academic status. A majority of policies typically provide coverage extension for full-time enrolled students who are below 24 years old and were residents immediately before moving out for college. For those paying close attention “full-time” is defined by the school or university, not what the family or others may perceive as full-time.

If the policy conditions are met, this extended protection generally covers personal property loss or damage up to about 10% of the total personal property coverage limit within one’s existing policy. However, this may not apply if they’re part-time; thus reviewing individual policy terms becomes very important.

Influence Of On-Campus Vs Off-Campus Accommodation

It can get even more complicated. On top of the question about how many credit hours the student is taking, the actual location where a student resides during his/her studies also plays an integral role in determining what kind of protections he/she has under parental policies. Students residing in on-campus housing (i.e. the dorms) usually enjoy some level of protection through their parents’ existing home coverage.  However, those living off-campus (the duplex a few blocks from the Quad) might find themselves without any continued protection because many insurance companies consider off-campus properties an unacceptable risk extension, requiring independent renters insurance protection rather than relying on the parent’s coverage. Again, consult, consult, consult your policy and the help of a professional insurance advisor.

A Quick Look at Renters Insurance: Why It Matters For Students

As noted earlier, university housing insurance often protects the interests of the landlord. Here are some of the important coverages provided to students under a renters insurance policy.

• Personal Property Protection: Renters insurance provides comprehensive coverage against thefts, damages caused by fire, and other perils to the student’s personal property, which is typically not covered in a standard student housing or landlord insurance plan.
• Liability Coverage: Similar to the personal liability protection provided to landlords through rental property insurance, this crucial coverage helps cover expenses related to accidental injuries that occur on rented premises where the student may be held accountable for legal fees, settlements, or damage payments.
• Add-on Coverages/Endorsements: When creating a renters insurance policy, there are specific additions to the basic coverage that can have a significant impact. These enhancements include features such as providing replacement cost for personal belongings without factoring in depreciation deductions, which can greatly increase the reimbursement amounts available.

Cost of Student Housing Coverage

The cost associated with student housing insurance is typically higher than traditional home or rental property insurance due to the unique risks involved in renting to students and the less-than-robust markets that may exist for this specialty coverage.

Factors Affecting Premiums

Several specific factors play a significant role in determining your premium for student housing insurance, which include:

• Credit-Based Insurance Score: Maintaining a solid credit-based insurance score can have a positive impact on your financial obligations, potentially leading to lower premiums. This is because a strong score often indicates fewer claims and safe operating procedures.
• Newer Building Eligibility: Rental properties that are newer and less likely to have issues may qualify for discounts under specific landlord packages offered by many insurers. This factor significantly influences the final quote you receive from an insurer.
• Building Systems Age: Although the rental property may not be brand new, buildings that have recently undergone updates to core systems such as HVAC, electric, plumbing, and roofs will not only qualify for a wider range of insurance options but are also likely to benefit from lower premiums.
• Rental Property Location: Premium rates also depend heavily on where your rental property is located. If it’s situated in areas prone to natural disasters, a far drive to full-time fire stations or near brush areas or those susceptible to higher crime rates, then higher premiums may arise.

Ways to Enhance Safety and Potentially Lower Costs for Student Housing Insurance

Given that there are fewer options available to find student housing insurance companies, it’s important to put your properties in the best position for success when you work through the shorter list of carrier choices. At the same time, most of the suggestions that may help alleviate premium costs are also great operational and safety enhancements — so, the proverbial win-win. Here are a few key suggestions:

1.  Publish Property Safety Rules: Property managers and landlords should provide tenants with written and digital safety guidelines to ensure their well-being while residing on the premises. By implementing tenant education, not only can potential risks for college students living in rental properties be minimized, but it also enhances operational efficiency by establishing key safety protocols. This is crucial not just for tenants’ safety, but also for third parties such as investors, lenders, and rental home insurance companies. 
2.  Hire an Experienced Property Management Company with Student Housing Experience: Many landlord insurance companies, including those that specialize in student housing, find reassurance in knowing that a third-party property management company, which is licensed and insured, oversees the safe and efficient daily operations of your rental units. This helps reduce risks and ensures that potential hazards are effectively managed.
3.  Create Disaster Preparedness Training: Landlords and property managers should provide tenants with an evacuation plan that includes emergency contact information in case of a major disaster, ensuring a prompt and secure evacuation to protect lives and property.
4.  Regular Inspections of Fire Safety Devices: Fire extinguishers, as well as smoke and carbon monoxide detectors, must be installed in compliance with legal regulations and undergo regular testing according to a documented plan.
5.  Secure All Exterior Doors and Windows: Install deadbolts on all doors and make sure that windows have working locks.
6.  Install 24-7 Remote-Monitored Alarm System: Many insurance carriers offer discounts for properties that have burglar alarm systems that are externally monitored by a 24-7 service for added safety.
7.  Install and Maintain Exterior Lights: Ensure that entrances, exits, walkways, parking lots, and other areas are adequately illuminated and properly maintained.
8.  Regularly Inspect Property for Safety Concerns: Loose handrails, missing outlet covers, and cracked pavement are some of the areas that should be included in a routine written safety inspection plan.
9.  Install Water-Leak Alarm with Automatic Shut-off: To address the issue of higher vacancy rates in student housing units during semester breaks or at the end of the school year, it is essential to implement water leak sensors that can automatically stop water flow. This precautionary step aims to minimize the potential for significant water damage caused by sudden pipe bursts due to freezing temperatures or other factors.
10.  Install Stove-Top Fire Prevention: These fire suppression systems can be cost-effectively installed in the kitchen beneath range hoods, cabinets, etc. to efficiently detect and extinguish fires before they have an opportunity to escalate.

Conclusion

Finding insurance for student housing is not a typical task. It requires a specialized policy that addresses the specific risks associated with these unique properties. The limited options available emphasize the importance of tailored programs that cater to the challenges faced by owners of student rentals. These insurance programs offer comprehensive coverage designed to mitigate the unique risks of these properties. They provide financial protection and peace of mind, regardless of who is renting the space. While mainstream insurers may have limitations, it is still possible to find robust insurance solutions that meet the distinct needs of those seeking coverage for off-campus housing. It’s important to note that paying higher premiums for student housing insurance should not mean compromising on sufficient coverage, especially considering the potential risks involved in managing rental properties, particularly those occupied by college students!