The answer is an emphatic YES.

Here’s a Brief Explanation:

You need to add your property manager as additional insured in case you and/or your property manager are sued by a neighbor, tenant, visitor, etc. for something related to the property. A property owner is required to pay their property manager’s legal fees and this will come out of your own pocket if your property management company is not added onto your insurance policy. In addition, it is much better to have a unified defense and coverage extending to both parties.

Furthermore, as the policy is converted to a rental policy, adding your property manager as additional insured will be easy to do and is very common. Often insurance carriers give discounts to owners hiring professional management companies because they view this as reducing their risk when a professional manages a major asset.

Here’s a Longer Explanation:

The main reason why property owners hire property managers is so they have someone to take care of the property and deal with all the burdens of owning rental property. Investing in real estate can be a profitable business but it doesn’t come free of problems, so hiring a knowledgeable property management company is always an option that should be explored.

Many questions arise when it comes to insurance policies and property managers naturally. How much will my rates go up? Should you add them? What are the benefits? Is it really that important? Is it expensive? Is it worth it?

If you hired a serious and professional company to manage your real estate investment, they will ask you to include them on the policy. It will help protect them and you as the owner and is well worth the trouble.

You will need to add them as “Additional Insured”, and not just as “Additional Interest”. If they are merely “additional interest” they will only be notified of policy renewals, but they are NOT covered under the policy. If something was to happen they would not be covered. You want them covered so don’t make this easy mistake.

Why should you add them? Why is it important?

You want your property management company to deal with all the small things, hiring vendors to fix things, finding tenants, do collections or evictions if needed… all the things you don’t want to deal with. Since they are doing these items, they inherit liability and risk. If there were to ever be litigation, the owner and the manager would be the target. If the property management company is included as insured, the coverage will be extended to both parties. A unified defense can be assigned to represent both parties, drastically reducing legal fees and simplifying the process. If you don’t, you will most likely need to cover your property management company’s legal fees out of your own pocket. It is worth adding them to the policy to avoid this costly nightmare.

Most property management companies have their own liability insurance, both general and professional. This means they are covered if there’s financial loss due to a mistake or wrongful act on their part. But if something happens with the home itself, they are not covered. This makes the property management company vulnerable. If someone injures themselves at the property if there’s a fire, burglary, a water leak, etc. they could potentially be sued by a resident and that would not necessarily be covered under their general or professional insurance. This is something that can be prevented simply by adding the property management company to the insurance as an owner and then coverage is more full for both parties.

If the company is not covered, they would have to cover the expenses and seek reimbursement either from the owner or their insurance. A much more expensive and time-consuming way to handle something that can easily be prevented.

What about the insurance companies? Do they agree? Is it worth it? Is it expensive?

Yes, yes yes and…no! Most insurance providers are willing to add the property management company as additional insured upon request. The insurance carriers who charge additional for this and see it as additional risk simply don’t do enough of these rental policies, and you are better off finding a new provider. The major carriers and agents who understand real estate investments actually see the additional insured property managers as a reduction of risk, and will often give discounts because of it. So adding your property management company is definitely a savvy move.

Final considerations:

Always make sure your property management company is added as “additional insured”, not just as “additional interest”.

Ask about the additional charges. If there is one, try looking for other companies to provide insurance. If you cannot find one that does it for free, remember that a small fee could save you a lot of expenses down the road and may still be well worth it!