Many assume that ANY kind of damage done by a tenant will be covered. This is simply not the case. Though coverages vary, certain types of damage done by tenants are excluded in standard property insurance policies.
While Intentional tenant damage and wear-and-tear are excluded, accidental tenant damage done by tenants is covered by most property policies. For example, an accidental kitchen fire caused by inattentive cooking would generally be covered. If the investor client’s policy includes Water Damage, there may also be coverage for water discharge. An example of this would be the tenant’s child sending their stuffed fish for a swim in the “local bowl.” Your policy will most likely exclude Sewer and Drain Backup unless your investor client has REInsurePro’s Tenant Protector Plan.
How much can this type of damage cost the investor client?
The potential loss varies based on the time and resources needed to repair the damage in order to get the unit rent-ready again. Based on claims data, we’ve seen damage amounts equal anywhere from $5,000 to $30,000. It can cost as much as the property is worth or more depending on geographic location. On top of repair cost, your client must add in any lost rental income, unless they have Loss of Rents coverage in place. Interruptions like this can wreak havoc on your client’s cash flow and profits but there are ways to avoid it!
What type of tenant damage is excluded from my client’s insurance policy?
There are two main types of tenant damage that are excluded: Intentional Damage and Wear-and-Tear.
Intentional tenant damage might be a tenant purposefully causing harm to the property during the eviction process or shortly thereafter; it is usually a sudden, one-time event. This could include damage such as broken doors, missing appliances, spray-painted walls, smashed mirrors, and a host of other nasty surprises. Damage like this is reimbursed through the security deposit or through a civil suit.
Wear-and-Tear can look severe in some cases but is caused by the daily stresses of living over time. For example, broken blinds, marks on walls, worn/stained carpet, nail holes, scratched-up floors, and damaged bath fixtures.
This tenant damage is also addressed through the security deposit. Some types of wear may just be the cost of doing business, but it is up to your investor client to decide which items would constitute normal maintenance versus those items for which the tenant will be held responsible. Investors should check their local laws and ordinances regarding security deposits as well.
These types of damage are NOT: Damage done by tenants is not considered Vandalism or Theft according to some carriers. Though the damage done to a unit may be similar to Vandalism or Theft, the difference is that the investor has a written contract (i.e., the lease) entrusting the tenant with the care of the property. That contract stipulates the penalties for any misuse of the property.
How can my clients protect themselves from intentional tenant damage?
To combat Intentional Tenant Damage: Two words – thorough screening. There is no substitute for placing a reliable tenant. If the relationship turns sour during their stay, Cash-for-Keys may be a good alternative strategy. Investors should not be tempted to waive a security deposit to place a tenant. Placing someone that they may end up having to evict will likely cost much more than the one or two more months of rental income your investor client will miss out on so that they can do their due diligence to place a good tenant.
To keep Wear-and-Tear to a minimum: During the check-in and walk-through, the investor should give the tenant a detailed list of the cost to repair or replace specific items in the home. The investor client’s goal should be to help tenants get back their full deposit and let them know that upfront. Showing up for your regular maintenance visits also demonstrates the investor cares for the property and their lead may inspire tenants to take better care of the home.
If your investor clients would like additional protection for tenant-caused negligent losses, ask your Sales Manager about our Tenant Protector Plan. Not only does it provide more coverage, but also gives investors $1,000 per residence premises of Skip Rent coverage.