Many assume that any kind of damage done by a tenant will be covered by insurance. This is simply not the case. Though coverages vary across the globe, certain types of damage done by tenants are excluded in standard policies within the U.S. marketplace.
Welcome to our “Is It Covered?” series. For a fuller introduction of the series, read HERE. We hope these quick reads will help you increase your understanding of your insurance coverage, clear up confusion and help you avoid preventable losses! Please bear in mind that insurance policies may vary, so always check your own policy for language specific to your covered property. If you have coverage questions, don’t hesitate to call your agent who will be happy to assist you!
What Type of Tenant Damage is Excluded from Insurance Policies?
There are two main types of tenant damage that are excluded from insurance policies – Intentional Damage and Wear-and-Tear.
An example of Intentional Damage would be a tenant purposefully causing harm to your property during the eviction process or shortly thereafter; it is usually a sudden, one-time event. This could include damage like: 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 hardwoods, damaged bath fixtures, and the like.
This damage is also addressed through the security deposit. Some types of wear may be reserved for your cost of doing business, but it is up to you to decide which items would constitute “normal maintenance” versus those items for which the tenant will be held responsible. Check your local laws and ordinances regarding security deposits too.
Damage done by tenants is not considered Vandalism or Theft according to some insurers. Though the damage done to your unit may be similar to Vandalism or Theft, the difference is that you have a written contract (i.e. the lease) entrusting your tenant with the care of your property. That contract stipulates the penalties for any misuse of the property.
What Tenant Damage is Covered by Insurance?
Accidental damage done by tenants is covered by most property policies. Unfortunately, both common and preventable, an accidental kitchen fire caused by inattentive cooking would generally be covered, for example. If your policy includes Water Damage, there may also be coverage for water discharge, like when the tenant’s child sends their stuffed fish for a swim in the toilet bowl.
What Does the Technical Lingo of This Exclusion Look Like in My Policy?
Sample policy language may look like this:
“Intentional damage caused by tenants, including, but not limited to malicious destruction before and during occupancy, or within 10 days of eviction or vacancy is excluded.”
As insurance policies may vary, please check your own policy for language specific to your covered property.
How Much Can Tenant Damage Cost?
The potential loss varies based on the time and resources needed to repair the damage to get a unit rent-ready again. Based on claims data, we’ve easily seen damage amounts equal anywhere from $5,000 to $30,000, but it can be as much as your property is worth and could be much greater depending upon your geographic location. On top of repair costs, you must add any lost rental income. Interruptions like this can wreak havoc on your cash flow and profits but there are ways to avoid it!
What Can I Do to Protect My Investment?
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 to avoid an angry, destructive exit. Lastly, don’t be tempted to waive a security deposit to place a tenant. Placing someone that you may end up having to evict will likely cost you much more than foregoing one or two more months of rental income so you can do your due diligence in placing a better tenant.
Keep wear-and-tear to a minimum: During the check-in walk-through, give your tenant a detailed list of the cost to repair or replace specific items in the property. Your goal should be to help them get back their full deposit – let them know that up front too! Also, showing up for your regular maintenance visits demonstrates your care for the property and your lead may inspire them to take better care of their home.
Protect yourself by adding the Tenant Protector Plan to your coverages for rental properties: The Tenant Protector Plan provides additional protection to you, as a landlord, and your tenant for tenant-caused negligent losses. You can purchase the Tenant Protector Plan as a stand-alone option or combine it with property and liability coverage. While we always recommend that landlords require their tenants to carry renters insurance, the TPP adds an extra layer of protection for both parties.