Understanding Landlord Protection Policies and Renters Insurance
Choosing an insurance policy, whether it is for your personal property or your business, can be a confusing process. As a non-insurance expert, for more than a year, I have been having detailed conversations with the agents at Cross Insurance Agency about finding the right insurance. My name is Dominic Corriveau, the Digital Marketing Coordinator at Cross Insurance Agency, and this is part two of my interview series demystifying complex insurance topics.
In this interview, I had a fantastic conversation with Rachael Erben, who has spent the last 10 years helping landlords protect their investment and their tenants. Insurance on rental properties can be tricky and, in this discussion, Rachael provides insights on the layers of protection landlords need for their properties.
Give our discussion a listen, watch the video, or read the full transcript below.
This transcript was generated using a combination of speech recognition and human transcribers. It has been lightly edited for clarity and general grammar corrections but still may contain errors.
Dominic: Thank you for explaining to me a little bit more about landlords into a dwelling fire. I mean, this is really… it’ll help me get a better understanding on what these topics are, because I talk a lot about, or I talked to a lot of people about car insurance or umbrella, or kind of normal, not normal, like very common insurance stuff.
Rachael: Yeah. Like the regular ones.
What makes a landlord policy different?
Dominic: As a former landlord, when I moved to Arizona, my brother was going to stay in my previous place. So I’m like, “Okay, well, I better call my insurance company.” And as I explained to them what’s going on, “Oh, we got it.” And then I don’t know what they did. I didn’t even know what I needed to do. I imagine that there’s a lot of conversations that you’ve had with landlords in the past that are very similar, which is, “I feel like I need to have something different. What do I need?”
Rachael: Exactly. Because one of the biggest things is people think as long as they have coverage on the home, whether it be homeowners or whatever, that if they decide to move out and rent it, that it’s covered. Well, it’s not the proper coverage or it’s not the right coverage that they need. That’s where just call and ask a couple of questions and we help them get it, move to the right market.
Dominic: What is the difference between the two, because that’s immediately that’s what my thought was, “Well, I got home insurance. I don’t understand what the difference is, why I need a different landlord policy.” And then like just the way for them to get an extra $50 out of me or a hundred dollars or whatever it ended up being.
Rachael: Right. Well it, actually, the majority of times it ends up being a little less than a home policy because what’s happening is your still covering the dwelling and liability, but you’re not covering your personal property or all of your personal property because that’s with you. I myself, normally put between $10,000 and $20,000 of coverage for personal property to cover the appliances and things like that, that are going to be left in the home. So that’s the major difference is you’re paying for $10,000 or $20,000 worth of coverage for personal property versus $200,000.
Dominic: That’s the part that I missed, that the policy doesn’t need to cover your personal effects anymore. I mean, that’s really up to the renter to get their own renter’s policy. And then me, when I moved at my new place, I have a different policy for that.
Should I require my tenants to get renters insurance?
Dominic: And I imagine that’s a pretty common thing. There’s not a lot of people who they get a renter in and they don’t have them get renter’s insurance then for their personal effects?
Rachael: Well, so it’s actually still shocking the number of people or apartments that don’t require their tenants to carry renters. It’s just shocking to me because it’s such a small price to pay to cover, not only for the tenant to cover, not only their belongings, but their liability as well. Along with what they call the loss of use coverage, so like if they’re displaced from their unit, for any reason, like a major claim, then they have that coverage to pay for them to stay elsewhere until they either find another place or their unit is fixed.
And so it’s definitely not just personal property that comes into play for the renters. I’d say liability is a pretty huge one as well. And yeah, it’s shocking to me that, you’ve got these a hundred unit apartment complexes just want you to carry renters who don’t care what your liability limit is. So everyone carries a hundred thousand of coverage, which isn’t going to cover much if there’s a major event.
Dominic: Yeah. And one of my first apartments me and my wife lived in, the unit upstairs, it was like a bunch of college aged kids. They broke a water faucet and it leaked all throughout their unit and then it drained through the ceiling into mine. Oh, it was a mess.
Rachael: I had like some friends of mine when we were just out of high school, had a similar incident. They were on a third floor and I want to say they broke… It was something with like the nozzle on the bathtub. I can’t remember how it happened, but they were definitely found liable and it flooded the two units below them. So not only were those two units, they were displaced, they had to pay for the damage to those two units so that adds up real quick. And if you’ve got a hundred thousand of coverage, you’re going to be left paying out of pocket for quite a bit.
Dominic: When you’re in an apartment scenario or condo or townhome, any of those scenarios, it’s easy for you to think about your stuff. But you forget that you’re joined at the wall. You’re connected to at least one other place. That’s how it was for us in Arizona. We shared a wall, and that place every six months, it felt like there was someone new moving in there and they were doing all kinds of wacky stuff.
Rachael: You share walls with anybody, I mean, you want to make sure you’re covered for if something happens and that’s why it shocks me the apartments don’t require that tenants carry half a million because it’s literally a couple bucks more a year for five times the coverage. And it can really save your tuchus in a pinch.
Dominic: If you say you own a single family home and you want to rent that out versus I own a condo and now I’m moving out and I want to rent that condo out. Is there a difference in the policies for that?
Rachael: The main difference I would say is we don’t have too many markets that cover rental condos, but I mean, ultimately it’s kind of the same as a home. It’s just instead of the entirety of the unit, the exterior and the roof, you’re just responsible for the studs in, but it’s the same. You want to make sure that if you’re renting it out, that that tenant has their own coverage. So that if something happens, you’re good because so many landlords that I still run into think, “Oh, well, if I carry insurance on the unit or the home, anything that happens is covered.” And that’s simply not the case because unless they cause the damage or it’s faulty wiring that causes a small electrical fire, if it’s damage that’s caused by the tenants, the landlord protection policy won’t pay out because the landlord is not responsible for that damage.
Rachael: That’s where I really tried to explain to my clients that do have rental homes and don’t require renters insurance. And so many of them are, “Oh, well, my insurance wouldn’t cover that?” No, because you didn’t leave a candle burning and burned down half the house. That was your tenant. So your insurance isn’t going to pay anything.
Dominic: I can see now how there is layers of coverage here?
Rachael: Oh yeah.
Dominic: There’s so many different things that can happen. And there is no silver bullet.
Rachael: There’s so many different, like you said, layers and scenarios that can happen. I’ve I had a client who had tenants for 12 years and he never required them to get renters. And they literally burned his house to the ground. And it wasn’t covered because they left a torch burning, they caught the house on fire. They didn’t have renters. And so he lost a three bedroom, two bath house.
What insurance advice do you have for new landlords?
Dominic: If there was someone that called in and said, “Hey, I’m buying an investment property. I’m renting it out. Not short-term rentals, these are long-term and sign a contract rentals?” What would you advise them to do?
Rachael: Basically, we want to get it covered at the highest possible liability limit. We want to make sure, of course, to properly complete the replacement cost estimator, so we have a proper coverage limit for the home. But yeah, it’s just a matter of making sure that we get all the correct info so we can make sure to get them covered properly for that exposure.
And then I also recommend, if they don’t already have an umbrella, that they get one of those as well, because you know, when it comes with everyone being so sue happy these days, something does happen like a burst pipe that floods the home or an electrical fire or a bad roof or something like that, and the tenant decides to sue. Yes, there’s a good chance that their initial coverage, as long as it’s at half a million will be sufficient, but we just always recommend those umbrellas just for peace of mind coverage, because everyone’s so sue happy these days. Sally could sue for pain and suffering and missed wages and this, that, and the other. It’s just a good idea whether you have those exposures, but it’s just a matter of making sure you’ve got the home properly covered. You’ve got a great liability limit and go from there.
Dominic: It sounds Like right policy, have an umbrella, and then also whoever your tenant ends up being, require them to have a rental policy, too. Renters.
Dominic: On the umbrella. Would that still be a classified as a personal umbrella policy or is that a business owners or like a commercial umbrella?
Rachael: It would be a personal umbrella, depending on the number of rental homes or units that they have. The majority of my clients maybe have one to three rental properties. And so it’s just a matter of with the umbrella, adding those locations on so that that liability extends.
Dominic: I’m unclear on how difficult or problematic an umbrella policy can be. Is it hard to get?
Rachael: Well, it can be if you’ve maybe had some liability losses or, you have quite a few claims or driving activity because really the umbrella follows the auto. We do have some markets for standalone umbrella, but you have to make sure that the underlying policies are the primary policies for auto, home, and the landlord protection, all meet the underlying requirements. So they have to have the highest option for liability on the auto. They have to have at least $300,000 liability for home and landlord protection before that umbrella will extend. I normally have my clients say, “Hey, you have to have at least $300,000. I recommend that you have $500,000, as your primary because that’s $200,000 more that you can use before you would have to dip into your umbrella.”
Have any landlord insurance stories or examples?
Dominic: You talked to a lot of people about this. I’m intrigued to hear some examples that you’ve had on how you’ve developed this. “Hey, I want you to make sure that you’re covered. You should at least have these things because I’ve experienced X, Y, and Z.” I’m intrigued to hear some of your stories.
Rachael: The biggest one is the one, like I said, where my client owned a home that he rented out and they burnt it to the ground and he didn’t get anything for it. Or I had a client a couple of years ago that had a fourplex that she rented out. And one of the upstairs tenants decided to do one of those deep fried turkey things.
Dominic: Oh no.
Rachael: Oh my God, out on their patio, it was Christmas morning. They burnt down the entire fourplex.
Dominic: Oh, my.
Rachael: Thank God they had renter’s insurance. But even at that, so if you think about it, okay, they had half a million, but they burnt down a four unit dwelling. They displaced themselves, and three other families. That $500,000 is going to add up real quick. I don’t want to say necessarily flack from my friends for having an umbrella policy, even though I’m a renter. But in that situation where you are probably close to using up all of my liability on my renters, as well as my umbrella, because not only just paying for the initial displacement of the families, fixing of the fourplex, but then you’ve got, the families could turn around and sue you. A lot of people say, “Oh, well, nothing that big can ever happen to me.” Everybody thinks that, but things happen. And that’s why insurance exists.
Dominic: In these scenarios, there’s so much that’s out of your control. No matter how much you tell your tenants, “Don’t do this, don’t do that, make sure you do these things.” Even people who you think are smart do questionable things sometimes.
Rachael: Oh yeah.
Dominic: That turkey fire thing every year, everyone is,” Listen, be safe with this, do it outside.” If you’ve never done it before, maybe just consider not doing it. And every year there’s these horror stories of people that…
Rachael: They had this tiny little, I want to say it was like a five by 10 porch patio area upstairs, and that’s where they did it. And within minutes, the entire fourplex just had burnt. Like I said, I like telling those stories, not to necessarily scare them, but just to let them know, “Hey yeah, you think just because something could never happen, but this happened to one of my clients, it happened to someone else. Freak accidents happen all the time. And I’m just trying to make sure that you’re covered.”
Dominic: One of the things that I like when I talked to everyone on the team, that say, insurance is there for a reason. It’s there for when something goes bad. Not because you need to be in compliance with some regulation or with your loan or whatever it is, you’re paying for it for a reason. So if you are paying for it every month and then when something happens and it doesn’t cover it, what were all those payments for?
Rachael: Yep, exactly. And you also, on that same note, you have to think the companies that are lending you the money don’t require this for no reason. They require certain coverages because stuff has happened. So it’s not just them trying to get them more money or do this. They’re trying to make sure that you cover your exposures and your risks. I’m just trying to make sure that you have adequate limit. I’m honestly just trying to let you know that the limits you carry right now may not be enough to cover you if there’s a catastrophic event, which is what insurance is made for.
Dominic: As markets change cars go from being $25,000 to now being like $60,00 – $70,000 a vehicle. And your home value goes up 30% in one year like what’s happened in the last two years for a lot of them. What worked 5 years ago, 10 years ago, isn’t going to match what it is now.
Rachael: And one of the other things, especially we’re running into, whether it’s a regular home policy or a landlord protection policy, we’ve been reviewing the home specifics to make sure that we have proper coverage limits. Because some of these policies that people put in place, they’re like, “Oh, I’m good. Okay. I never have to worry about it again.” Well, that’s not true. You know, because over the last year, the cost of materials has skyrocketed. So your house that you’re renting out that may have taken say $250,000 to rebuild two years ago is now $310,000. So it’s just a matter of really encourage them to reach out and ask the same questions that you are, and really understand, or let us get them to understand, why making sure you have the right coverage is important and making sure your tenants carry renters is important.
Dominic: Okay. This has been a really good conversation. Thank you, Rachael.