If you manage apartments, condos, or other residential or commercial real estate, you likely need property management insurance. This insurance provides crucial protection so if something goes wrong while you’re running your business, you won’t have to cover losses out of your own pocket.
A typical property management insurance policy includes several types of coverage, including general liability to offer broad protection, workers’ compensation insurance coverage for employees, protection for physical structures, and coverage against tenant-related risks.
But not all policies are created equal, so it’s important to understand how this insurance works and what to look for when selecting a policy. Here’s how to decide if you need property management insurance and how to find the coverage that’s best for you.
Property management insurance is an insurance policy that covers the unique risks you face when running a property management business. If you’re accused of making a mistake or failing in your responsibilities, this insurance pays your legal defense bills and covers any damages.
Most policies geared toward property management firms cover the biggest risks that arise when overseeing apartments, condos, or other real estate. This includes disputes with tenants, property damage, or costly errors you’re responsible for causing.
A typical insurance policy geared toward a property management company includes multiple types of protection for claims that could arise based on your professional duties. Here’s what these policies usually cover:
General liability: This offers broad protection against a wide variety of legal claims, including for things like causing damage to property or an accident that hurts someone other than a worker.1
Errors and omissions (E&O): If you’re accused of negligence or a failure to fulfill your responsibilities, errors and omissions coverage can pay to defend you and cover any damages you caused.
Property protection for physical structures: If you’re responsible for something happening to the building, or to any physical property, this property insurance coverage will pay legal fees and damages.
Workers’ compensation: When you hire employees, you’re typically required to buy workers’ compensation insurance. This will pay for any workplace injuries your employees suffer on the job.
Tenant-related risks: If your tenants file legal claims against you, such as for wrongful eviction, your insurance can cover the resulting costs.
Liability coverage is designed to offer protection in any situation when you might be sued. It’ll pay your legal fees, as well as any compensation you’re required to pay to the plaintiff for things like medical bills or pain and suffering. The more real estate you manage, the more potential risk you face of a lawsuit, and the more important it is that you have coverage.
Some examples of different situations where liability coverage could help you pay costs you incur include:
If a tenant is injured and files a lawsuit against you
If an accident occurs and someone is hurt and sues
If you’re sued for damaging property
Errors and omissions coverage — also known as professional liability insurance — protects you if you’re accused of making a mistake that causes damage while providing professional services.
Your coverage will pay for both your legal defense costs and legal judgments that include things like medical expenses and lost income.
Some examples of situations where you might need this coverage for different types of claims include:
If you make a mistake with a lease agreement
If you fail to address an issue at the property that causes harm, such as a pest infestation or a gas leak
If you neglect repairs that cause the property to be damaged, such as failing to fix a leak that causes water damage
If you’re accused of wrongfully evicting someone
If you’re accused of tenant discrimination
In some cases, a property owner may require you to buy property manager insurance. But you may want to purchase this coverage even if it isn’t mandatory. You should buy property management insurance if you want to protect your assets and fear there’s a risk you’ll be sued.
Here are some things to consider when deciding if you need to buy a policy:
Number of properties you manage: The more properties under your control, the greater the risk of something going wrong that results in a lawsuit.
Types of properties you manage: If you manage residential properties, there may be a greater risk of issues with tenants. If you manage commercial properties, you could face an increased risk of damage to expensive equipment or issues like chemical leaks.
Number of employees you manage: Protecting your workers in case of injuries is critical — and you may be required to get workers’ comp insurance coverage.
Legal requirements in your state: You may be required to buy certain kinds of protection under state laws, such as workers’ comp coverage.
When you buy property management insurance, you need to decide both what kind of protection to buy and what the policy limits should be. You’ll also need to consider the cost of premiums, which can be affected by the type of properties you manage, how many tenants you have, and where your properties are located.
Most property management firms should purchase multiple types of coverage, including general and professional liability, workers’ compensation, and commercial property insurance coverage or property damage insurance.
As for how high to make your policy limit, think about the size and scope of your property management operations. The more properties and tenants you manage, the higher your coverage limits should be.
You generally want to err on the side of buying more protection than you think you’d need, as the cost of legal defense fees and damages can be very high.
Your state or the property owner may require you to buy a certain level of protection and provide a certificate of insurance to prove it. But you don’t always want to stick with the minimum, as your assets are on the line if someone sues you and you don’t have enough insurance to cover all the losses.
Many companies within the insurance industry offer coverage for property management firms. You’ll need to shop around and choose the best policy. As you consider your options, here are a few factors to help you decide which company is best.
Since insurance protects against a serious risk of major financial loss, you don’t want to make mistakes when you purchase your policy. Here are some common errors to avoid:
Underinsuring properties: If you have too little insurance coverage, you risk not insuring for the full value of your property if it’s damaged. Be sure to consider the size and scope of your management obligations for each property to get the right protections in place.
Ignoring policy exclusions: Some property management insurance policies exclude specific types of losses or damages. Make sure you understand exactly what each policy covers so you aren’t surprised when a loss happens and your policy won’t pay for it.
Not adjusting your coverage as you add more properties to your portfolio: As you take on more properties to manage, you may need to increase your coverage limits so you remain fully protected.
If you still have questions, here are some additional answers that can help you make informed choices.
It’s possible. Some types of insurance may be mandatory for property managers. Your state will typically require you to buy workers’ compensation insurance, and the real estate owners you work for may require additional protections such as liability coverage or property damage coverage.
Not usually. Tenant disputes are typically covered under your general liability or professional liability policy, depending on the nature of the conflict.
Yes. Property management insurance can cover legal fees. You’ll need the right coverage in place, including general liability insurance, E&O coverage, and property damage liability coverage to make sure the insurance company will pay your legal costs.
The average cost of property management insurance for smaller companies is around $395.3 But the cost of your policy will depend on many factors, including the number of properties you manage, your location, your policy limits, and the insurer you select.
At Insurify, our goal is to help customers compare insurance products and find the best policy for them. We strive to provide open, honest, and unbiased information about the insurance products and services we review. Our hard-working team of data analysts, insurance experts, insurance agents, editors and writers, has put in thousands of hours of research to create the content found on our site.
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