NREIG’s Tenant Protector Plan (TPP) is a truly distinctive offering that helps investors and their tenants in the event of a property loss caused by tenant negligence. While we always recommend that landlords require their tenants to carry renters insurance, the TPP provides protection for both parties. Below, we will outline the coverages typical in a renters policy, what the TPP covers, and how the two work together and in conjunction with the property policy.
What renters insurance covers
Most standard renters insurance policies include coverage for personal property, loss of use, and personal liability (including medical payments).
Personal property coverage is fairly straightforward. Tenants may be reimbursed for the theft or destruction of their personal belongings – furniture, electronics, clothing, and appliances (only those owned by the tenant). If you, the landlord, carry contents coverage on your property policy, this only covers items owned by you, not any of your tenants’ belongings.
Loss of Use
If there is damage to the rental property that leaves the location uninhabitable and causes the tenant to lose out-of-pocket costs to maintain their current standard of living, this coverage can reimburse those expenses. This may include hotel costs, gas, or food that exceeds normal expenses.
Liability coverage provides the tenant with legal defense and expenses if their negligence results in injury to someone else (including on the premises of your property), or if they cause damage to your property.
In the event your tenant does cause injury to someone else, this coverage can help cover their medical bills.
How does the tenant’s renters insurance help the landlord?
As the property owner, you likely carry property insurance to help cover costs if your property is damaged by a sudden and unexpected event. The frequency or severity of your property claims can affect your future rates or ability to obtain coverage. So, what if that sudden loss occurs because your tenant left a candle burning or clogged the toilet? Your property insurance will likely make you whole, but by no fault of your own, your loss history is affected.
If your tenant has renters insurance, your property carrier can subrogate their losses against the tenant’s policy as the truly negligent party. What does subrogate mean? Subrogation is the assumption of another’s right to collect debt or damages. So after your property insurer settles your claim, they will also submit a claim to the tenant’s renters insurance for that carrier to reimburse them for the loss they paid out (up to the personal liability limit). This lowers your loss ratio and makes insurers look more favorably on you.
Alternatively, if your tenant invites a guest over and their negligence leads to that guest getting injured on the premises of the property you own, the injured party can sue any party related to the incident. As the property owner, this puts you at risk. If your tenant is found to be legally liable, their policy will cover the defense costs, legal settlements, and medical payments (up to any stated limits) rather than your premises liability. You should require that the tenant’s renters insurance policy lists you, the landlord, and your property manager as Additional Insured so that both parties are covered if drawn into a lawsuit.
What does TPP add to the equation?
Have you ever had a tenant move in and show you their proof of renters insurance, only for them to stop making payments and have their coverage canceled with you none the wiser? This leaves you thinking you have this extra layer of protection, only to find out when it’s too late that it is not in force. This is where the TPP can give you peace of mind, as well as a few additional benefits for you, the landlord. The TPP is purchased by the property owner and provides a limit of liability that can help alleviate your property loss history for tenant-caused negligent losses. If a tenant’s renters insurance is not in place, your property carrier can subrogate against the TPP instead. It also provides $10,000 of contents coverage for your tenant’s belongings. For this reason, some landlords include the cost of the TPP in their leases.
But in addition to these, the Tenant Protector Plan also provides three additional coverages that make it such a unique product. The first is a sublimit of property coverage for Sewer & Drain Back-up. This means that if a toilet overflows or clogged sewer line forces water back into the house (whether due to tenant negligence or not), you are able to recover up to $10,000 for the repairs that damage may cause.* This coverage is excluded from standard property policies.
Next, there is a sublimit for the belongings of tenants in adjoining units that may be damaged as a result of another tenant’s negligence. Take, for instance, a duplex. The tenant in unit A accidentally starts a kitchen fire in their unit causing smoke damage to the furniture and clothing in unit B. The tenant of unit B can recover up to $2,500 to replace their damaged items.
The other coverage any landlord will find beneficial is up to $1,000 in Skip Rent coverage. This allows you to recover the last month’s rent (up to $1,000) in the event of unexpected vacancies. This can include a tenant who up and leaves mid-lease with no warning, military deployment, a tenant who passes away unexpectedly, or a finalized eviction.
How does it work if the tenant has renters insurance and the landlord has TPP?
The TPP works in excess of any renters insurance in place. So in the instance where a tenant-caused negligent loss causes $70,000 worth of damage, and the tenant’s insurance policy has a $50,000 limit of liability, your property carrier can collect $50,000 from the tenant’s renters insurance carrier, and another $20,000 from the TPP carrier to make themselves whole.
While the TPP and renters insurance have some crossover, the added layer of protection and peace of mind it can provide is well worth it when and if you should need it.
Learn more about the Tenant Protector Plan here
Learn about our Renter Protection Plan for your tenants here
*Please note that we have multiple carrier contracts that underwrite our TPP coverage with several differences. Review your policy carefully and discuss the specifics of your coverage with your advisor.