As a commercial landlord or real estate investor, you need to protect your property and your tenants. That’s why you should consider getting lessors risk only (LRO) insurance. LRO is a specialized form of insurance that provides coverage for landlords against tenant claims. In this blog post, we will explore what LRO is, what it covers, who needs it, the differences between LRO and other types of insurance policies, and how much it costs.
- What is Lessors Risk Only (LRO) Insurance?
- Who needs Lessors Risk Only (LRO) insurance?
- What does Lessors Risk Only insurance cover?
- What doesn’t lessors risk only (LRO) insurance cover?
- Differences between Lessors Risk Only (LRO) insurance and commercial landlord insurance
- Differences between Lessors Risk Only (LRO) insurance & general liability insurance
- Differences between lessors risk only (LRO) insurance & commercial property insurance
- How much does lessors’ risk insurance cost?
What is Lessors Risk Only (LRO) Insurance?
Lessors risk only (LRO) insurance is a type of policy designed for landlords who rent out residential or commercial properties. This type of policy protects landlords from bodily injury and property damage claims by the tenants and the tenant’s employees. It also provides liability protection against third-party claims resulting from tenant activities on the premises such as slips and falls. Additionally, LRO policies can be tailored to fit each landlord’s individual needs with additional coverage options like business interruption insurance, legal defense costs protection, and more.
Who needs Lessors Risk Only (LRO) insurance?
Any landlord who rents out residential or commercial properties should consider getting an LRO policy to protect themselves against financially devastating claims by their tenants. Owners or investors of apartment buildings, office buildings and space, shopping centers and malls, and warehouses should get lessors risk only coverage.
If the building is financed by mortgage lenders, it is very likely that the lenders require lessors risks only (LRO) coverage during the term of the loan.
What does Lessors Risk Only insurance cover?
The coverage provided by an LRO policy can vary depending on the insurer and the specifics of each policy. Property location may also affect the coverage of the policy.
Generally speaking though, most policies cover the following claim scenarios filed by a tenant or their employees:
- Slips and falls
- Fire
- Sewer/drain backup
- Burst pipes
- Vandalism & theft
- Weather-related damage
- Invasion of tenant privacy
- Wrongful entry & wrongful eviction
- Breakdown of tenant equipment
- Loss of digital information if tenants are using the landlord’s computer network
What doesn’t lessors risk only (LRO) insurance cover?
Lessors Risk Only Insurance does not cover the building’s damages, the tenant’s personal property, and third-party liability claims.
- Building damages: If your building is damaged due to any reason, lessor risk only (LRO) doesn’t cover it. You’ll need a commercial property insurance policy to cover that
- Tenant’s personal property: Lessors risk only (LRO) doesn’t provide coverage for the damages to your tenants’ personal property. They will need to have their own commercial property coverage or business renter insurance coverage.
- Third-party liability claims: Lessors risk only (LRO) doesn’t cover liability claims by third parties, such as your tenant’s customers or delivery man in the building, you still need your general liability insurance to cover these claims.
These out-of-coverage scopes can be protected by separate policies as mentioned above or by a comprehensive commercial landlord policy, which serves as a bundled policy for commercial landlords.
Differences between Lessors Risk Only (LRO) insurance and commercial landlord insurance?
Lessors Risk Only (LRO) and commercial landlord insurance are the two popular policies for landlords. While the latter is only for commercial landlords, LRO policy is only suitable for residential landlords. These 2 policies actually provide different coverage for the landlords.
While Lessors Risk Only (LRO) insurance protects landlords from liability and property damage claims specifically by the tenants or tenants’ employees, commercial landlord insurance provides more comprehensive liability and property coverage, including the damages to the building itself, damages to the tenant’s personal property, bodily injuries by 3rd party claims, and business interruption claims.
Differences between Lessors Risk Only (LRO) insurance & general liability insurance
The primary difference between an LRO policy and a general liability policy lies in what they cover—general liability policies provide broader coverage for bodily injury and property damage claims than an LRO. The LRO policy only covers landlords from the claims by their tenants and the tenants’ employees.
Additionally, while both types of policies can include personal injury provisions such as medical payments if someone is injured while on the premises covered by either policy type, only an LRO will offer protection against the tenant’s claims.
Differences between lessors risk only (LRO) insurance & commercial property insurance
Commercial property insurance provides more comprehensive coverage for your property than lessor’s risk only (LRO) policies. LRO policies only cover you against property damage claims by your tenants, it doesn’t protects you from other damages caused to your building. You’ll need a commercial property insurance policy to protect your building completely.
However, commercial property insurance policies don’t provide coverage for liability claims from your tenants. LRO policies will provide you with such coverage.
How much does lessors’ risk insurance cost?
Depending on several factors including building size, building age, type, and location, etc., premiums for lessor’s risk only insurance can range anywhere from $500-$3,000 per year with most averaging around $1800 annually depending on deductibles chosen.
This is just the average. It’s important however that when shopping around for this type of insurance make sure all quotes are fully itemized so that there are no surprises later down the line when filing a claim after something goes wrong with one of your properties.
Learn more at business renters insurance cost
Which factors affect the lessors risk only insurance costs?
There are several factors that can impact the cost of lessor’s risk only (LRO) insurance, including:
- Type of property: Different types of properties, such as residential, commercial, industrial, and retail, can impact the cost of lessor’s risk insurance. Properties that are more prone to damage or losses, such as those located in high-risk areas or with a high potential for natural disasters, may result in higher insurance costs.
- Location: The location of the property can also impact the cost of lessor’s risk insurance. Properties located in high-risk areas, such as those near the coast or in areas prone to natural disasters, may result in higher insurance costs.
- Value of property: The value of the property being insured can also impact the cost of lessor’s risk insurance. Higher-valued properties may result in higher insurance costs.
- Policy coverage: The amount of coverage and type of policy can also impact the cost of lessor’s risk insurance. A policy with a higher amount of coverage or additional endorsements may result in higher insurance costs.
- Claims history: The claims history of the property can also impact the cost of lessor’s risk insurance. Properties with a history of frequent or costly claims may result in higher insurance costs.
- Deductible: The amount of the deductible chosen can also impact the cost of lessor’s risk insurance. A higher deductible may result in lower insurance costs, while a lower deductible may result in higher insurance costs.
It’s important to note that the cost of lessor’s risk insurance can vary greatly depending on the specific factors involved in each situation, so it’s best to get quotes from multiple insurance companies to find the best coverage for your needs at the best possible price.
You should require tenants to add you (the landlords) as additional insured to their liability policy
Requiring tenants to add landlords as an additional insureds to their liability insurance can provide several benefits, including:
- Protection against liability claims: If a tenant causes damage to the property or causes harm to someone on the property, the landlord may be held liable. By requiring tenants to add the landlord as an additional insured to their liability insurance, the landlord will have protection against these types of claims.
- Peace of mind: Knowing that you are protected against potential liability claims can provide peace of mind and help you feel more secure in your investment.
- Financial protection: If a tenant causes damage or harm, the cost of repairs or legal fees can be substantial. By requiring tenants to add the landlord as an additional insured to their liability insurance, the landlord can avoid having to pay these costs out of pocket.
- Transfer of risk: By requiring tenants to add the landlord as an additional insured to their liability insurance, the tenant is transferring some of the risk to their insurance company. This can help to reduce the risk for the landlord and make the rental process smoother.
- Better tenant screening: Requiring tenants to have liability insurance and adding the landlord as an additional insured can also be a good screening tool. Tenants who are unable or unwilling to secure liability insurance may be more likely to engage in high-risk activities on the property, making them a higher risk for the landlord.
- Compliance with local laws: Some local laws and regulations may require landlords to have insurance coverage in place, and adding the landlord as an additional insured to the tenant’s liability insurance can help to ensure compliance with these laws.
Conclusion:
When renting out residential or commercial properties, protecting yourself from potential financial disasters resulting from bodily injuries and property damage by tenant claims becomes paramount in order to ensure success over time—this is where lessor’s risk only (LRO) insurance comes in place. The policy covers you from these potential claims by your tenants or their employees. LRO policy isn’t usually expensive.
