Discover what personal liability insurance for renters covers, its exclusions, and why it's essential for both tenants and property owners.
It’s without question a very important part of the standard renter’s insurance policy which provides coverage against potential financial losses. As an owner or property manager, understanding this topic more clearly can help you assist your tenants and ultimately provide greater financial protection for tenants and your operations. We will explain what the personal liability portion of a renters insurance policy covers and its importance in the investment property context. We’ll also discuss how it protects against events beyond the rental property itself. Further on, we’ll explore how legal fees are covered under this provision in a renters’ insurance policy and typical exclusions from coverage. Lastly, we will talk about why some tenants may need more protection like a Personal Umbrella Policy and why landlords often require their tenants to obtain personal liability insurance in the first place. Let’s jump in and learn more!
What Does Personal Liability Insurance Cover?
Personal liability coverage in a renter’s policy is similar to the personal liability protection in a homeowner’s policy (also called Coverage E in insurance jargon). While not exactly the same, it covers many personal liability exposures, but for renters. To learn more details surrounding personal liability coverage, Investopedia has a helpful article you can read by clicking here.
The Scope of Personal Liability Coverage
It’s an important financial safety net for accidents that result in bodily injury or property damage to a third party (so, not the insured or a resident of the insured’s household!).
- Bodily Injury: If someone slips and breaks an arm in the tenant’s home, this coverage pays for medical bills and legal costs.
- Property Damage: If the tenant floods their rental unit and it destroys some of the neighbor’s personal belongings and furniture, personal liability insurance helps pay for the repairs or replacements next door.
Personal Liability Protection: Beyond the Rental Property
Did you know that your renters insurance may extend to accidents outside of the rental unit? Here are 10 examples to consider:
- If the tenant’s dog bites someone at the park.
- If the tenant accidentally tackles someone too hard during a friendly game.
- If the tenant stumbles in her friend’s living room and breaks an antique vase.
- If a fire starts in the tenant’s apartment and spreads to a neighboring unit.
- If a tenant’s child accidentally injures someone at the playground.
- If a tenant drops a heavy item while shopping at the grocery store and it injures the foot of nearby shopper.
- If the tenant accidentally crashes into someone with their bike at the park.
- If someone gets hurt during a picnic or beach outing organized and overseen by the tenant.
- If the tenant’s child’s baseball breaks a neighbor’s window.
- If the tenant’s child who is a full-time student living at school is involved in an unfortunate skirmish with another student resulting in an injury.
This is a short list of many potential scenarios but it illustrates how important renters insurance can be for those unfortunate accidents that occur, even beyond the rental property itself. Examples aside, you still need to read your policy carefully and consult with a licensed insurance professional to confirm what coverage you may, or may not, have as each situation is unique.
Coverage Limits & Deductibles
The coverage limit is the maximum amount your insurance will pay per claim. The deductible is the amount you must pay before your insurance policy begins to cover expenses. Most standard renters insurance policies have coverage limits, usually between $100k-$300k (in $100,000 increments) per incident, and potentially as high as $500,000, or even $1.0 million (depending on the carrier and the state involved). In terms of deductibles, they typically range from a few hundred dollars up to a few thousand dollars.
How Personal Liability Coverage in Renters Insurance Handles Legal Fees
One of the often overlooked yet key aspects of personal liability coverage in a renters insurance policy is the inclusion of legal defense costs. Lawsuits can be extremely costly, regardless of their merit or the final outcome. However, within the limits set by the policy, this type of coverage typically covers legal fees incurred during such situations.
Coverage Inside vs Outside the Policy Limit
A further detail that relates to legal fees is how they impact your limits. We will attempt to break it down in a simple manner:
- A typical renters insurance policy will include coverage for legal expenses within overall limit specified in the policy and, therefore, will only pay up to that maximum amount (for all aspects of the covered loss). For instance, if your coverage limit is $200,000, but the total legal expenses and judgment exceed this amount, you would require an outside the limits policy that offers reimbursement for legal fees (beyond the policy’s maximum limit) in order to have coverage beyond the $200,000. It’s important to carefully consider this factor when selecting your limits under a renters insurance policy as legal fees can rapidly deplete the overall available coverage limit. This is a big deal. Take some extra time before choosing a plan, ask questions and make sure you know how each insurer handles this.
The Importance of Reviewing Your Coverage Limits and Exclusions
We talked about limits but take a good look at your renters insurance declaration page to see what’s covered under personal liability. Watch out for exclusions like intentional harm or running a business from home. Let’s explore this in a bit more detail given the potential gaps in coverage that may result.
Typical Exclusions from Personal Liability Coverage Under a Renters Insurance Policy
Not all situations are covered by personal liability coverage under a renters insurance policy. Here are the six examples of claims typically excluded:
- Intentional Acts: Any harm or damage caused by the intentional acts of the tenant are excluded.
- Business Activities: If a tenant runs a business from their apartment, any related liabilities are usually not covered. To protect themselves, tenants need separate commercial general liability insurance or other suitable policies.
- Vehicles & Watercrafts: Injuries or damages involving vehicles or watercrafts aren’t usually included as insurance companies expect that tenant’s have separate auto or watercraft insurance policies.
- Pets: While some pet-related incidents may be covered, there can be exceptions based on breed and bite history. These exclusions should be carefully reviewed by tenants given that Forbes reports that the average liability related to a dog bite is approximately $64,555!
- Renters’ Own Property Damage: If a tenant accidentally damage their own belongings or property, it’s not covered under personal liability — remember, it covers third-party losses.
- High Value Personal Belongings: It’s easy to miss, but if a renter has valuable personal belongings, they may require extra coverage or an endorsement added to their renters insurance policy. Why is this necessary? Well, these policies have specific limits (known as sub-limits) for different categories of items, which are usually lower than the overall policy limit. As a result, high-value possessions like jewelry, artwork, and collectible coins might need to be included in a separate endorsement or covered by a separate personal articles policy altogether.
Each policy will have its unique set of limitations and exclusions, so review them carefully with a licensed insurance professional. You may also want to take al look at Insure.com‘s guide for more helpful background on how all this works.
Why Landlords Require Tenants to Obtain Personal Liability Insurance Under Their Renters Insurance
As a landlord, safeguarding your rental property and reducing the likelihood of potential exposures is paramount. One of the most effective ways to do this is by requiring tenants to have renters insurance, including personal-liability coverage.
The Importance of Lease Agreements Requiring Renters Insurance
In many lease agreements, there’s a clause mandating tenants carry renters insurance. This requirement helps shield landlords from potential liabilities arising from accidents on their properties. For instance, if a guest slips on an icy sidewalk outside your rental unit and decides to sue you as the property owner, having evidence that your tenant has personal liability coverage can be invaluable. With appropriate coverage in place, claims will typically be made against the tenant’s insurance company rather than the landlord’s.
Evidence of Coverage: Certificate of Insurance or Declaration Page
Subject to applicable laws, Tenants must provide proof they’ve secured adequate renters’ insurance before moving into their new home. The two common documents used are either a certificate of insurance or declaration page confirming they’ve met this obligation. The certificate of insurance (COI) serves as proof that an active policy exists while the declaration page outlines more specifics about coverages and limits included in their plan.
Avoiding Lawsuits and Claims Against Landlord Insurance
An unfortunate reality for landlords is being named in lawsuits related to events occurring at their rental properties – even when not directly involved. Having tenants with personal liability coverage reduces this risk significantly because it covers costs associated with such cases including medical expenses incurred due to injuries sustained within rented premises or repair costs following accidental damages inflicted upon neighboring units.
- Reduces Financial Risk: If an accident occurs on your property resulting in damage or injury, without proper renters insurance, you may end up bearing significant out-of-pocket expenses.
- Limits Legal Liability: In certain cases, if someone sustains an injury within your rental property, they may choose to include you as a defendant in the lawsuit alongside the tenant. However, having adequate renters insurance policies can help mitigate this risk as individuals would generally file claims against the policy rather than directly against you or the tenant.
FAQs in Relation to What is Personal Liability Insurance for Renters
What does personal liability mean in renters insurance?
Personal liability in renters insurance refers to coverage for medical expenses, legal costs, settlements and damages if the renter is found legally responsible for injury or property damage to a third party.
What is the difference between personal liability and renters insurance?
Renters insurance is a comprehensive policy that provides coverage for the loss or damage of personal belongings caused by theft or other incidents. It also includes reimbursement for additional living expenses if a tenant needs to temporarily move due to a covered event, such as a fire. On the other hand, personal liability insurance focuses on the renter’s legal responsibilities in case they cause injuries or property damage to others.
What does renters insurance liability coverage protect you against?
Renters insurance liability coverage provides protection against financial loss if a tenant or their guest suffers an injury on your property and decides to sue. It covers legal costs, medical expenses, settlement costs and damages awarded by the court. Additionally, it can cover unintentional damage caused to neighboring properties by the tenant. This policy is also a must-have for landlords as it helps mitigate potential financial risks associated with renting out property as claims can be made against the renters insurance instead of a landlord insurance policy.
Hopefully this article made clear just how valuable renters insurance coverage is for both landlords and tenants. Where permissible, landlords should mandate this policy via their lease agreements to protect all parties. Whether it’s required, or not, tenants need to work with a licensed insurance professional to obtain this coverage given the valuable financial safety net that it unquestionably offers.
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