There’s a short answer and a long, more detailed answer.

Here’s the simple answer:

To state it simply if your property manager issued, you may be responsible to pay those attorney fees. You want insurance to pay those costs -not you! If you don’t add your property management company as additional insured, and you and/or your property manager are sued by a neighbor, tenant, visitor, etc. for something related to the property, you will be required to pay your property manager’s legal fees and expenses out of your own pocket. It is better to have a unified defense and coverage extending to both parties so that you can avoid the nightmare of huge expenses at your own cost. That is what the property’s liability policy is for.

When a policy is converted to a rental policy, adding your property management company as an additional insured party will be commonplace. Often insurance carriers give discounts to owners hiring professional management because they see their risk is decreased. So adding them might actually save you money in the long run! And if this isn’t the case with your insurance company and you have to spend a little money it is worth the coverage.

Here’s the more detailed answer:

The main reason why rental owners hire property managers is so they have someone to take care of the property and deal with all the issues of owning rental property. Investing in real estate can be a profitable business but it doesn’t come free of problems, so hiring a knowledgeable property management company is always an option worth looking into. If you want to avoid lawsuits then highing professionals will be one of the best deterrents.

Many questions arise when it comes to insurance policies and property managers. Should you add them? What are the benefits? Is it really that important? Is it expensive? Is it worth it?

If you hired an experienced and professional company to manage your rental property, they will ask you to include them on the policy because they will understand how important it is. It will help to protect them and you as the owner of the property.

You will need to add them as “Additional Insured”, and not just as “Additional Interest”. There is a big difference between the two! Don’t run the mistake of just adding them as “additional interest”. If they are listed as merely “additional interest” they will only be notified of policy renewals, but they would not be covered.

In the property management world sometimes we hear questions like, “Why should you add them if you’re insured? Why is it important for me as an owner? I’m fine if I’m sued!”

You want your property manager to deal with all the small things, hiring vendors, finding tenants, collecting on delinquent accounts, or assist in evictions if needed… all the things you don’t want to deal with yourself. Because they’re doing these items, they inherit liability and risk. If there were to ever be litigation, the owner and the property manager would be the main targets. If the property management company is included as insured, the coverage will be extended to both parties. A unified defense can be assigned to represent both parties, drastically reducing legal fees and simplifying the process. If you don’t, you will most likely need to cover your property management company’s legal fees out of your own pocket because your insurance provider would not pay for their defense.

Why is it important for property management companies to be added to the insurance as additionally insured?

Most property management companies have their own liability insurance, both general and professional. This means they are covered if there’s financial loss due to a mistake or wrongful act on their part. But if something happens with the home itself, they are not covered. This makes the property management company vulnerable because if someone injures themselves at the rental property or if there’s a fire, burglary, a water leak, etc then they are on their own. This is something that can be prevented by adding the property management company to the insurance policy as “additionally insured”.

If the company is not covered, they may cover the expenses and then seek reimbursement either from the owner or their insurance. This is a more expensive and time-consuming way to handle something that can easily be prevented.

How do insurance companies feel about this? Do they agree? Is it worth it? Is it expensive?

Most like it! Most insurance providers are happy to add the property management company as additional insured upon request. The insurance carriers who charge additional for this and see it as additional risk simply don’t do enough rental policies to understand that a pm actually reduces risk, and you are better off finding a new provider. The major carriers and agents who understand real estate investments actually see the additional insured property managers as a reduction of risk, and will often give discounts because of it.

Final Thoughts:

  • Always make sure to have your property management company is added as “additional insured”, not just as “additional interest”.
  • Ask about the additional charges. If there is one, try looking for other companies to provide insurance. If you cannot find one that does it for free, remember that a small fee could save you a lot of expenses down the road and is well worth it. Proactively take control of your investment’s liability with adequate insurance.