Adding Your Property Manager as Additional Insured on Your Property Owner’s Insurance Policy
One of the key reasons rental property owners work with a property management company like Keyrenter is to minimize the risks associated with rental property ownership.
A common question that arises is the importance of adding your property manager as Additional Insured on your property owner’s insurance policy. Below, we address some crucial points.
Why Should I List My Property Manager as Additional Insured on My Insurance Policy?
Experienced property management firms, including Keyrenter, increasingly require property owners to add the management company as Additional Insured on their insurance policies. While this step is sometimes overlooked due to convenience or misunderstanding, it is a critical component of a comprehensive risk management strategy—not just for the management company, but for the property owner as well.
What Does “Additional Insured” Mean?
When your property management company is listed as Additional Insured on your insurance policy, it extends coverage beyond just the property owner to also include the management company. This is often confused with “Additional Interest,” but the two are very different. “Additional Interest” does not extend coverage; it simply informs the property manager of any policy changes, renewals, or cancellations. It’s important to understand that the Additional Insured status does not give the property management company any financial interest in the property, unlike a mortgage holder. Instead, it covers the management company from liabilities related to the property, such as personal injury claims.
Why Is Adding the Property Manager as Additional Insured Important for the Property Owner?
When a property manager is hired, they take on many responsibilities akin to those of the homeowner. This includes being a potential target for litigation in cases such as personal injury. Reputable property management firms, like Keyrenter, typically include strong indemnification and hold harmless clauses in their management agreements. If the property management company is properly listed as Additional Insured, the insurance coverage automatically extends to both the owner and the manager, offering protection to both parties.
In the event of major litigation, where both the property manager and the owner are named as co-defendants, having one insurance company represent both parties can streamline the defense process, significantly reducing legal costs for everyone involved. This unified approach is ultimately in the best interest of the property owner.
If the owner does not have their insurance company name the property management company as additional insured, they will be on the hook for the legal fees and expenses associated with the legal protection of the property manager. This can be costly.
Why Is the Additional Insured Endorsement Important to the Management Company?
While most property management companies carry General Liability and Professional Liability Insurance, these do not cover incidents directly related to the property itself, such as injuries, fires, or water leaks. By being listed as Additional Insured, the property management company, like Keyrenter, is protected against these claims.
Without this endorsement, the management company might have to handle legal defense on its own, then seek reimbursement from the owner, which could be costly and time-consuming for all parties involved.
Are Insurance Companies Willing to Add the Property Manager to the Owner’s Policy as Additional Insured?
Most major insurance companies recognize that adding the property management company as Additional Insured is beneficial to their customers and will do so upon request, often at little or no extra cost. However, sometimes with the larger groups and smaller or specialized insurers, they may be hesitant, unwilling, or even tell you it’s not allowed or illegal. Really, they are trying to reduce their risk exposure. It’s important to note that professional management generally reduces overall risk, making the inclusion of a property management company a wise decision for both the owner and the insurer.
Helpful Tips for Setting Up Insurance for Your Rental Property:
- Ensure your insurance agent understands you are requesting the property management company be added as “Additional Insured,” not merely “Additional Interest.”
- Ask if there is an additional charge for the “Additional Insured” endorsement. If so, consider shopping around while keeping in mind the overall value of your policy.
- Inquire about other insurance products that may benefit you, such as lost rent protection or an upgraded commercial policy.
- If your property management company does not consider an Additional Insured endorsement necessary, carefully question their reasoning and assess the potential risks.
Disclaimer: Always seek the advice of a local attorney to understand how real estate laws may impact you and your property.