What Kind of Insurance does a Property Management Company Need in 2023?

Summary

Learn what kind of property management insurance a company needs to safeguard against significant liability risks that can arise when they oversee rental properties.

Understanding what kind of insurance a property management company needs is a key priority for new and experienced managers. We’ll look at why property managers need to carry proper insurance protection and discuss the different types of coverage available. We’ll also look at how much this specialized form of business liability insurance typically costs.  Also, you can expect to learn about who should be listed as an additional insured on a policy, typical activities covered by such policies, and the risks landlords face if their manager doesn’t have comprehensive coverage. Let’s jump in and learn more!

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What is Property Management Insurance?

Property management insurance protects property managers from potential liabilities that can arise while overseeing rental properties potential liabilities that can arise while overseeing rental properties. This coverage shields you from risks like legal disputes with tenants or third parties that can be costly to defend without the aid of appropriate insurance coverage.

Typical Activities Covered by Property Management Insurance

Being a property manager involves an array of responsibilities to multiple parties. Here are seven activities that make property management insurance a must:

1. Tenant Screening
2. Rent Collection
3. Maintenance and Repairs
4. Property Inspections
5. Tenant Evictions
6. Negotiating Lease Agreements
7. Budgeting and Financial Reporting

Two Key Coverages for All Property Managers

• General Liability Coverage: Protects against bodily injury or property damage that happens on your managed properties. It’s a necessary shield against unexpected accidents and potential claims in today’s litigious society.  If someone slips and falls due to poor maintenance, general liability insurance will likely provide protection related to medical costs, legal fees, settlement amounts, or a damages award.
• Professional Liability (Errors & Omissions) Coverage: Covers legal expenses if you’re sued for mistakes made while performing your property manager duties. For example, if a landlord sues because of a tenant screening error, E&O coverage will provide important protection.

It’s important to be aware of the distinction between general liability and specialized insurance coverage such as E&O when you select the appropriate policies for your property management business to avoid the all-too-common gaps!

What Types of Additional Insurance Does a Property Manager Need?

In many cases, having general liability coverage and a professional liability policy may not provide sufficient protection for property managers against all potential risks associated with their activities. It is often necessary to include additional endorsements or obtain additional policies.  Here are a few key ones:

Workers Compensation Insurance:

Pays for medical expenses and lost wages if an employee gets injured. It’s important to understand how your state laws impact your requirement to obtain this coverage. Click here for a helpful article on Forbes.com that breaks down the insurance requirements of each state.

Tenant Discrimination Coverage:

Shields you from claims of discrimination associated with activities like the leasing of properties.

Business Personal Property Coverage:

Protects your office equipment from covered losses like fire or theft.

Employment Practices Liability Coverage:

Defends you against employment-related claims such as wrongful termination or discrimination claims.

The Advertising Injury Policy:

Defends you when someone accuses you of copyright infringement in ads or perhaps libel or slander in your promotional activities.

How Much Does Property Management Insurance Cost?

The cost of property management insurance can vary widely, depending on factors like total revenue, number of employees, types of properties managed, and claims history. But here’s a rough estimate for a small business:

• General Liability Insurance: Premiums range from $500 to $2000 per year.
• Professional Liability (E&O) Coverage: Average annual premium ranges between $1000 and $3000.
• Workers Compensation Insurance: Costs are calculated based on payroll size, starting at around $800 annually for small businesses.

Be aware that these are just rough estimates; actual costs can vary greatly!  You need to review your specific situation with an experienced insurance professional.

Premium Factors

Factors that influence insurance costs for property managers include:

1. The number of properties managed: More properties, equates to higher revenue (and likely employees) which will result in higher premiums.
2. Type of rental units: Residential, hospitality, warehouse, parking, and commercial units have different risk profiles.
3. Your business’s loss history: Previous claims can increase premiums.

Bundling Policies Can Save Money

Bundling different coverages under a “business owner’s policy” (BOP) can result in significant savings compared to buying each type separately. A BOP typically includes general liability coverage and property damage protection combined in one policy.  Speak to an insurance professional to ascertain if this strategy is suitable for you.

Who Should Be Listed as an Additional Insured on a Property Manager’s Policy?

Don’t forget to add the right people as additional insureds on your property management insurance policy.

Why Landlords Need to Be Listed

Landlords should be on the list. They’re the ones who are typically held responsible if anything goes wrong with their properties.  If landlords don’t require coverage in the first place, it’s a great marketing tool to display to potential new customers to establish the professionalism of your operations.

The Benefits for Landlords

• Risk Transfer: Adding landlords as additional insureds helps shift some of the risks away from them and onto the insurer.
• Avoiding Claims on their Policies: Landlords benefit from the coverage benefits provided by the property manager’s insurance policy and avoid making costly claims on their policy which may lead to premium increases or non-renewal.

Beyond Landlords: Other Potential Additional Insured Parties

It’s not just landlords who can benefit from being named additionally insured. Depending on the circumstances, other entities like contractors or lenders might require to be listed on the manager’s policy.   Remember, adding extra names to your insurance policy may cost more so it’s important to understand who needs to be listed, how to list them, and the costs associated with doing so.

FAQs About What Kind of Insurance Does a Property Management Company Need

Which types of claims are covered by a property manager’s professional liability insurance policy?

A property manager’s professional liability insurance typically covers claims such as negligence, misrepresentation, violation of good faith and fair dealing, and inaccurate advice.

What does professional liability insurance cover?

Professional liability insurance, also known as Errors & Omissions (E&O) Insurance, covers legal costs and payouts for which the insured party is found liable in case of negligence or errors in providing services to clients.  The Hartford has a great summary about this type of coverage which you can read here.

What is general liability insurance?

If you accidentally cause harm to someone else and it leads to damage to their property or physical injury, a general liability insurance policy will typically cover the costs of medical expenses, legal fees, settlement amounts, or damages awarded.  Forbes has an in-depth article on this topic that you can review by clicking here.

Conclusion

Property management companies must have insurance coverage to protect themselves and their clients from potential risks and liabilities. To ensure adequate protection, property managers should obtain a comprehensive insurance policy that covers general and professional liability (also known as errors and omissions). In addition, they may need additional coverage for areas such as workers’ compensation, tenant discrimination, employment practices liability, and property damage. Now, if someone asks, what kind of insurance does a property management company need, and implementing it, you can eliminate some big exposures and create a key risk management shield against risks that may lead to outsized legal actions and, equally important, a great disruption to your day-to-day work of overseeing real estate investment properties.