Lessor’s risk only, or LRO for short, is a very niche type of commercial insurance coverage. It’s specifically designed for landlords and owners of leased property used for business.
This can be true for apartments, warehouses, and any storefront locations with a lease. Lessor’s risk only covers owners' damages or claims from tenants within the rented property and injuries.
This coverage is designed for the landlord’s or business owner’s protection, not the business or individual renting. Some leasing companies may require it.
Insurance Navy works with carriers like Hartford, CNA, Progressive Commercial and Nationwide to write LRO policies for all sorts of landlords across Illinois, Indiana, Texas and Wisconsin.
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Why should landlords should carry Lessor’s risk only insurance?
The following are the most common hazards that lessors risk only insurance will come to the rescue to cover if any of them occur in a rented space:
Property damage resulting from fire or smoke
Injuries to tenants, and tenants only, while they are in the leased space
Legal damages and fees if a tenant chooses to sue
Criminal damage within the leased space resulting from theft or vandalism
Water damage resulting from an internal source like a burst pipe
Property damage if a vehicle were to collide with the building
Damage to rented space resulting from pollution
Damage due to climate weather or storms
Data breach or loss with apartment, store, or warehouse computers
How much does Lessor’s risk only insurance cost?
LRO insurance usually costs within a range of $400 to $2,500 a year for small to medium sized rental properties. A 10 unit apartment building might cost anywhere from $600 - $1,200 a year.
A large 50,000 square foot warehouse is more expensive at $1,500 to $3,000 a year. Insurers like Hartford, CNA, Travelers and AmTrust all offer LRO policies and price them based on the size of the building, the type of construction and the building's occupancy level.
Most underwriters look for the building to be at least 75% occupied. They'll also look at the property's claim history over the last 3-5 years.
Buildings with sprinkler systems, monitored fire alarms and security cameras will usually qualify for a 10-15% discount on their insurance premiums.
The most crucial Insurance for lessors
Lessor’s risk only insurance coverage
The critical difference between the lessor’s risk coverage and general liability is that general liability is coverage against damage to third parties.
These can be visitors to apartments or customers in a store. It also accounts for delivery personnel visiting the properties. Lessor’s risk is designed for tenants.
LRO won't cover any property or equipment that belongs to your tenants. That's something they'll need to take care of themselves through a commercial property or renters policy.
Lots of carriers bundle LRO into a Business Owners Policy (BOP) with general liability of $1 million per occurrence & $2 million aggregate. Hartford's Spectrum BOP and CNA's BusinessPro both offer LRO endorsements that can be added to an existing policy for a relatively affordable $200 - $400 a year.
Commercial property insurance
Commercial property coverage for rental buildings can cost anywhere from $1,000 to $5,000 a year. That's just to cover the replacement cost value of the building.
Most policies come standard with a solid list of perils like fire, wind, hail, and vandalism.
If you're worried about floods then you're going to want to get insurance through the NFIP or one of the private carriers like Zurich or Chubb. They can cost anywhere from $500 to $2,000 a year depending on how high risk your area is.
There's also earthquake coverage if you live in an area that needs it like California. That can add a further 10 to 20 percent to your insurance bill.
Additional types of Insurance for a lessor
Business Owners Policy (BOP)
A Business Owners Policy (BOP) will package up general liability, property insurance and business interruption into a single bundled policy.
For people who are renting out a property, the business interruption part of the policy will cover any lost rent if an event like a fire causes tenants to be kicked out of the building while it's being repaired.
Hartford, CNA and Travelers all offer BOPs to landlords starting at around $500 and going all the way up to $1,500 a year. The cost of a BOP policy all depends on how big the property is and how much its annual earnings are.
Most of the BOPs they offer will come with a standard $1 million liability limit per single incident.
Workers compensation insurance
LRO won't provide coverage for any of your employees. If you have maintenance staff, security guards or property managers on the payroll, you'll need to get workers compensation coverage.
In Illinois, workers comp is mandatory for any business size, even with just one employee.
In Texas it's not mandatory, but lenders usually require it. Your workers comp premiums are based on NCCI job classification codes. Property management staff fall under code 8742, while janitorial workers fall under code 9014.
You can expect to pay anywhere from $0.50 to $2.00 per $100 of payroll. Where your business falls within that range depends on the job duties and your claims history.
Cyber risk liability insurance
Cyber liability insurance for property managers is another thing to consider. It can cost anywhere from $500 to $1,500 per year to get $1 million in coverage limits.
Companies like Coalition, Cowbell and the Hartford offer policies that cover all the costs that come up after a cyber breach.
After a breach you have to pay for notification costs and credit monitoring for your tenants. Sometimes you must also pay for legal defense if a cyber attacker gets possession of your tenants data.