Betterment Insurance

What Is Betterment Insurance?

Betterment insurance is supplemental coverage for additions or modifications made by a lessee to a space they lease. Such policies cover only improvements that increase the value of the property and do not include the structure itself.

Betterment insurance policies typically cover improvements made to commercial properties. However, residential tenants could also purchase such a policy if circumstances warranted. Betterment insurance protects the tenant from financial harm that would occur if they were unable to use or benefit from improvements they make to a leased structure. This coverage is also known as betterment and improvement coverage. 

Auto insurance policies may also include betterment clauses to prevent the insurance company from overpaying for excessive repairs or upgraded parts. Betterment insurance should not be confused with the online personal finance platform of the same name.

Understanding Betterment Insurance

An entity leasing a building may purchase betterment insurance to protect the company, should they lose access to the use of modifications they made to the structure. Most businesses that lease space or a building may wish to make changes to fit their business concept and employee needs. In some cases, these modifications are temporary and can be easily removed or replaced if the business should lose access to the rented space or it becomes damaged.

Betterment insurance protects those modifications that the company makes that are not temporary. Examples of such changes would include the installation of specialized security cameras and lighting, upgrades to flooring and wall coverings, and upgraded cabling for computer and television use.

The property owner will usually hold a commercial property insurance policy on the structure itself. This policy has coverage based on the value of the structure. In some cases, a tenant may make improvements that will substantially increase the value of the property. The owner may wish to cover the cost of the modifications done by the lessee by increasing the insured value of the structure. In contrast, the landlord may want to exclude these improvements, which they may do, usually at no additional premium to their policy.

Claiming Damage Through Betterment Insurance

Landlords and renters should review their leases to determine which party is responsible for covering property damage for betterments and improvements done to leased spaces. 

Policies may differ in the definition of what constitutes betterment. In general, the term refers to permanent or semi-permanent alterations that an occupant installed, but cannot legally remove. As a tenant makes these modifications to the leased space, the added accessories do not legally belong to the occupant, even though they pay for the installation. While the tenant has a legal right to the use of the property they lease, improvements they make to the leased space remain part of the structure. 

Improvements will often increase the value of the underlying property. In the case of a claim for a covered loss, problems may arise if it is unclear who is liable for the protection of the modified items.

For the landlord, if the policy does not include betterment coverage showing the updated value of the structure, they may find the insurance provider will not pay enough in benefits to return the structure to its before-hazard use. Landlords may also explicitly exclude the changes but should notify tenants that they will not cover these improvements.

Tenants should make sure their business property policy includes the cost to replace or repair any betterments they made to the rental space. Some renters may not cover these improvements because they become part of the permanent structure, and they assume the property owner will protect them. However, even if the modifications are necessary for the tenant to do business, the owner is under no obligation to restore them unless the lease stipulates it is the landlord's responsibility. 

Example of Betterment Insurance

A restaurant leasing a building might make expensive investments in kitchen equipment, counters, and banquettes. Let's say a pipe burst and floods the building, damaging the custom banquettes. The insurance policy held by the building’s owner would pay for structural repairs, such as a new subfloor and drywall. However, unless the owner included the cost of the upgraded dining room banquettes in their coverage, they would not be covered. If not covered by the owner, it is the responsibility of the tenant to secure betterment insurance.

Betterment insurance is also vital in situations where the improved property remains undamaged, but the tenant can no longer use it. For example, if the landlord were forced to close the restaurant for legal or zoning reasons, the restaurant’s betterment coverage would apply. 

Auto Policy Betterment Clauses

The term betterment also comes up in the context of automobile insurance. Some auto insurance policies include provisions called betterment clauses, which give insurers the right to refuse to pay for replacement parts on a car that exceeds the “like-kind or quality” terminology of a policy. These parts are usually those which the insurance provider sees as having standard wear and tear such as timing belts, exhaust system, and air filters. 

Insurers employ these clauses as a way of discouraging policyholders from using insurance payouts to repair a vehicle to a condition better than it was in before being damaged.