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Why Do I Need Landlord or Building Insurance?

Owning buildings can be a very good way to build your equity, but can also be a huge liability. Without proper building / landlord insurance, you’re left wide open to financial disaster.

Fortunately, the most damaging mistakes are also easily preventable with precautions. Many precautions will also save you money. Take these points into consideration and take corrective, preventitive actions now to ensure your property is a success.

Legal Liability for Tenant Injuries

If you’re going to own them, maintain them! You can be held legally responsible if your negligence causes injuries.

• Maintain premises and remove safety hazards.
• Take all reasonable steps to avoid accidents.
• Fix problems quickly, especially if it's not expensive or difficult.

Tenants can file a personal injury lawsuit or insurance claim against your insurance company for:

• Medical bills
• Lost earnings
• Pain / Other physical suffering
• Permanent physical disability and disfigurement
• Emotional distress
• Damage to personal property

Ensure you take care of your property and have the proper liability limits set in place, just in case you’re faced with an unforeseeable liability.

Get Building Insurance on Everything

If you have more than one property, or multiple buildings, it's easy to miss getting building insurance on additions such as garages, mother-in-law additions, sheds, etc.

Make sure they're all covered. Reconcile the list of locations of your building insurance against your property taxes or federal income taxes. You should have your insurance agent review this list with you annually to ensure you don’t have gaps in your landlord or building insurance.

Liability Can Be a Shocker

Did you know you can be held liable for dangers you didn’t even know about, such as:

• Old Wiring: Don't frequently check the wiring? You're liable if there's an electrical fire or the tenant is injured.
• Dirty Chimney: Haven't cleaned the chimney recently? If there's a flue fire, you're liable.

Even if you didn’t know about it, you could be held liable. A “reasonable person” would take preventative steps and clean the chimney regularly and check or replace old wiring.

Get Building Insurance at Full Value

If your building insurace is less than full value, your insurance company will be receiving insurance premiums that reflect a less-than-full-value coverage. This means that if there's an incident, you'll be responsible for loss sharing (coinsurance).

If there's an incident, the amount potentially received is lessened by the percentage of your coinsurance. For instance, if your coinsurance is 20% and your building is worth $250,000, your potential payout on landlord / building insurance claims would be only $200,000. Worse, if your property value has gone up but your landlord / building insurance policy doesn’t reflect it, you face additional deductions from your payout.

Can you afford to eat a huge loss? If not, be sure your landlord / building insurance is at full value.

Personal Injury Insurance

Personal injury means injury other than bodily injury, such as:

• False arrest, detention or imprisonment;
• Malicious prosecution;
• Wrongful entry or eviction;
• When you say (libel) or write (slander) something about a person or organization that defames their character, or;
• Violation of a person’s right of privacy.

As personal injury insurance may not be on your insurance policy, be sure to discuss it with your insurance agent. Even if you're meticulously careful and are completely innocent, you'll still have to defend yourself in court. This can lead to staggering legal bills. However, with Personal Injury Insurance, if such allegations brought against you, your insurance company should defend you.

When Bad Decisions Bites You In the…

Negligent conditions don’t have to be physical problems with the building. It can be things like dangerous tenant activities or vicious dogs.

• If you know of tenants doing dangerous work with powertools in common areas, if someone is hurt, you may be held liable.
• If you know of dangerous dogs, and don’t take documented action to get the dog and tenant under control or evicted, you could be held liable if the dog hurts or kills someone.

Liability isn’t limited to just dogs, either. Horses and other large livestock in public areas also pose risks.

Replacement Cost Coverage vs Actual Cash Value

Simply put, Replacement Cost is better.

In the event of a building insurance claim, Actual Cash Value means the insurance company will:

• Pay the amount that item is currently worth, or pay the cost to replace the item, minus depreciation.
• Reserve the right to replace/repair the item instead.

With Replacement Cost, the insurance company will pay you what you paid for the item at the time of purchase, assuming you kept documentation and the item’s value is stated in the landlord insurance / building insurance policy at the time of signing.

Another way to ensure you have a fair payout is to get Inflation Protection, which protects against property values decreasing due to inflation. Talk to your insurance agent to discuss your best option.

Reduce Maintenance Costs

You can avoid denial of claims for many property damage, tenant liability and injury claims by maintaining your property and keeping solid documentation. Here’s how:

• Before move-in, use a checklist. Inspect premises. Fix problems before tenants move in.
• Ensure tenant signs checklist that shows condition upon move-in.
• Every 6 months, give tenants a checklist for reporting potential maintenance problems.
• Inspect rental units once a year with a checklist. Have the tenant sign off on it.
• Your commitment for repairs and maintenance procedures should be clearly set out in the lease or rental agreement.
• Encourage immediate reporting of problems in private and common areas, such as:
  • Broken sprinkler systems
  • Outdoor path or hallway lights burned out
  • Security problems
  • Broken doors or windows
  • Broken or damaged steps
  • Heating, plumbing or electrical issues
  • Garage door malfunctions
• Ensure all complaints, repair requests, and repairs are documented, as well who did the repairs.
• Urgent repairs and safety issues should be handled within 24 hours. Maintain clear communication with tenants about the problem, when repairs will be made, and if it will affect their use of the property.

Exclusions to Your Building Insurance

1. Boilers and Machinery: If you have a boiler, your HVAC system is not covered by your insurance policy. It requires a separate Boiler Policy.
2. Electrical Arcing: Artificially generated electrical current that disturbs electrical devices, appliances or wires.
3. Mechanical Breakdown: Mechanical breakdown, including rupture of bursting by centrifugal force.
4. Explosions of Steam Boilers, Piping, Engines: Explosion of steam boilers, piping, engines or turbines caused by or resulting from any condition or event inside such equipment.
5. Loss or Damage to Steam Boilers: Loss or damage to steam boilers caused by or resulting from any condition or event inside such equipment.
6. Loss or Damage to Hot Water Boilers: Loss of damage to hot water boilers, or other water heating equipment caused by or resulting from any condition or event inside such boilers or equipment.

Important Building Insurance Claims Documentation

Keeping good records is critical to any building owner, especially if building insurance claims are filed.

• Files on Current Tenants, such as:
  • Application
  • Criminal background checks
  • Records / Checklists reporting the condition of space prior to move-in
  • Security deposit record
  • Lease
  • Any other documents from the application process
• Files on Previous Tenants, such as:
  • Current file
  • Exit inspection records
  • Security deposit records and refund receipts
  • Any other pertinent documents
• Maintenance Records
  • Task journal from maintenance crew
  • Maintenance expenses (most easily tracked through accounting records)
• Key Management
  • Ensure that the proper people have the necessary keys/spares. It is important to security to also collect keys from old employees/tenants.
• Accounting and Customer Data Records
  • If using a computer system, BACKUP YOUR FILES on a regularly scheduled basis!!! Store the backup copy of your files off-site.
  • Keep as many records as possible in your accounting system (Accounts payable, Accounts received, Fixed asset purchases and disposal, Security deposits, and Depreciation schedule).
  • If a claim for loss of rent is ever filed, your main evidence will be your accounting records.

Records are also to be kept in an accurate manner as well as complete. This is especially true for accounting records. These records are critical when settling building insurance claims.

Contact us today for more information, learn more about property managers insurance, or get a business insurance quote today.