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 policies within the U.S. marketplace.
Is tenant damage covered under your insurance policy?
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 your policy includes Water Damage, there may also be coverage for water discharge. An example of this would be the tenant’s child sends their stuffed fish for a swim in the “local bowl.” Your policy will most likely exclude “Sewer and Drain Backup”.
How much can tenant damage cost me?
The potential tenant damage 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. It can be as much as your property is worth and could be much greater depending upon your geographic location. On top of repair cost you must add any lost rental income, unless you have Loss Rents coverage in place. Interruptions like this can wreak havoc on your cash flow and profits but there are ways to avoid it!
What type of tenant damage is excluded from your insurance policy?
There are two main types of tenant damage that are excluded: Intentional Damage and Wear-and-Tear
An example of Intentional tenant 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 tenant damage is also addressed through the security deposit. Some types of wear may be reserved to 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.
What both of these types of damage are NOT: Damage done by tenants is not considered Vandalism or Theft according to some insurers. Though 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.
How can I protect myself 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. 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.
To 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.
If you would like additional protection for tenant-caused negligent losses, look into adding the Tenant Protector Plan. Not only does it provide more coverage, but also gives you $1,000 per residence premises of Skip Rent coverage.