Turning Risk to Profit for Owners of Multi-Family
and Student Housing
What is a Tenant Damage Waiver?
The Tenant Damage Waiver (TDW) program allows the owner of multi-family or student housing to transfer the financial liability for tenant caused damages while fulfilling the tenant’s legal obligation for indemnification, as required within the lease agreement. It should be noted that tenants are not issued a policy for coverage. A TDW program is an alternative to an HO-4 policy and not designed to be offered as a replacement. It is a program which has been shown to reduce losses on the owner’s P&C policies and can be utilized as a deductible buy down.
How Does the Program Work?
A corporate based master policy is issued to the owner/manager of the housing, on which they are named as the insured, for $100,000 per occurrence coverage. Owners/managers can offer this protection to tenants upon a new or renewing lease as an optional coverage or make it mandatory as part of the lease agreement. This is not a renter’s insurance policy issued to the tenant, but an alternative option for the tenant to meet the property damage liability requirement within the lease. All tenants are eligible for participation as there is no individual underwriting or application process.
Within the $100,000 per occurrence limit, this program can provide up to $10,000 to impacted residents for their personal property damage/loss.
Turn-key Management and Monitoring
A Third-Party Administrator (TPA) provides proprietary software that provides delivery, monitoring and reporting systems to manage the entire process. The TPA will also provide training and support.
This program covers the following perils; fire, smoke, explosion, water discharge, sewer backup, collapse, falling object or freezing of pipes.
Endorsements can be added for pet damage, bed bug remediation and mold remediation at no additional cost to the tenant.
Using Captive Insurance to Maximize the Program
This program can provide substantial ancillary revenue to property owners through a captive insurance company.
Revenue collected for this program does not flow through the operating entity. Revenue is collected by the property owners and sent to a TPA. The TPA takes their administrative fee and remits the remaining funds to your captive as premium.
Captive profits when distributed as a qualified dividend are taxed at long term capital gains rates for the owners of the captive. This unique program offers property owners increased risk protection and ancillary income that can help build wealth over time.
While the tenant is not purchasing insurance through this program, the waiver dollars collected by the property owner are used to purchase insurance from a captive. A tenant caused damage policy is purchased with a per occurrence limit of $100,000. This is a reimbursement policy, where the property owner will pay for the repairs and seek reimbursement for covered expenses from the captive. This policy can cover expenses in your current commercial property policy or cover the whole occurrence without submitting a claim to the commercial carrier.
What’s Covered?
Under the master community-based insurance policy there is a $100,000 per occurrence limit with no deductible or aggregate limit.
The owner/operator is the primary insured as they are not selling insurance to the tenants, only offering a way to meet the financial obligations within the lease agreement.
Covered perils insured are for accidental, tenant-caused damages from fire, smoke, explosion, water discharge, sewer backup, collapse, falling object or freezing of pipes.
Endorsements can be added for pet damage, bed bug remediation and mold remediation at no additional cost to the tenant.
What Other Benefits Are There?
Many tenant-caused incidents result in damages less than $10,000 per occurrence and typically fall within the property insurance deductible. This program helps to fund the many nuisance claims that otherwise would be paid from the general assets of the company.
Having this program can enable the community owner to conduct a deductible optimization study for their commercial property policy to maximize the effectiveness of the program. Participation in this program may also give you preferred status with the commercial carrier of your property policy, which may reduce annual premiums.
To learn more about this program please contact:
Adam Perea VP – Business Development Atlas Insurance Management aperea@atlascaptives.com
602.882.1213
