Most landlords will purchase landlord insurance to protect themselves and their property, but many will overlook the need for renters insurance as well. Although your own insurance will cover many potential accidents, a requirement for additional insurance for your individual tenants will further protect you from legal troubles and financial loses. Fairly easy to include in your rental agreement and inexpensive for your tenants, renters insurance can provide you with the peace of mind you need.
Because of this, we’ve included the most important details about renters insurance and why you should make it a requirement for all tenants.
What is renters insurance and what does it cover?
Renters insurance, or renter’s insurance, is additional insurance that will protect not only your tenant, but also yourself. Renters insurance typically covers personal property, loss of use, and liability; it can also cover medical payments to others, credit card and bank forgery, and property of others. Because it will minimize the impact of tragic happenings such as robbery, fire, or death on the property, you should always require your tenants to purchase coverage.
Typically, renters insurance includes protection for your residents’ personal belongings, which is not included in landlord’s insurance. Most policies will offer personal property coverage only in the event of water damage, fire, vandalism, and theft; it usually does not include protection in the case that damaged is caused by “acts of God,” such as flood water, mudslides, or earthquakes. However, your tenants may be able to negotiate with the insurance companies to cover additional hazards. Although personal property coverage will have a specific monetary limit, such as $2,00 in coverage for electronics, it can minimize the effect should something go wrong.
Loss of use coverage will provide your tenant with living expenses should they need to leave your property after an accident. For instance, if a fire should affect your tenant’s unit and make it uninhabitable, their insurance will cover living expenses, such as hotel, food and rent costs.
Tenants insurance will also almost always include liability insurance. This covers the tenants should they accidentally cause serious damage to your property; rather than serve your tenants with a lawsuit, the insurance will pay you for the cost of repairs. Liability insurance also covers injuries sustained on the property because of the tenant’s negligence. For example, this will cover your tenant should a visitor trip over clutter and break their leg.
You can also require your tenant to purchase additional coverage on top of the standard tenant insurance. Coverage for medical payments will cover any injuries that occur in the unit even if they occur from no one’s negligence. Credit card and bank forgery coverage can also be added to the policy in order to protect your tenants from financial forgery should it occur as a result of a break in or robbery of the property. The third optional coverage option is third party property damage, which will cover the cost of damages if the tenant accidentally damages another property. For instance, your tenant will be covered if their sink overflows and causes damage to the apartment below, or if the tenant is outside playing catch and accidentally breaks their neighbor’s window. This ad-on will pay for the repair of such damages.
5 reasons to require renters insurance
There are various reasons to why you should require renters insurance, so keep these five reasons in mind when you are deciding whether or not to make it mandatory.
1. It’s an extra layer of protection for you, the landlord
The last thing you want as a landlord is to end up in court. Tenants insurance will ensure that even if something does go wrong, you won’t be in fear of a lawsuit. If something does go wrong, and your tenant does not have insurance, they may try to claim that you are partially responsible; however, with renters insurance, they will be covered and far less likely to take you to court. It will also mitigate the threat of lawsuit from visitors, should they get injured while visiting tenants on your property.
2. It lowers your responsibility
Even if something goes wrong and your tenant does not try to sue you, you may still feel responsible for your tenant’s problems. It is advised that you minimize your goodwill toward your tenants because of the potential for financial losses. Instead, you can sleep easy knowing that your tenants are protected and will be taken care of by their insurance company.
3. It will protect your rental income
If your tenant is sued for something or must pay for costs that tenants insurance would otherwise cover, they will likely be out a large sum of money, which will negatively affect their ability to pay you their rent on time. Insurance will keep your tenants from dipping into their savings and secure your income stream.
4. Red flags untrustworthy renters
The requirement to purchase rental insurance will make it clear which applicants are serious and which are not. If an applicant tells you that they cannot afford renters insurance, then it’s doubtful that you can rely on them to regularly pay their rent. Because renters insurance is such a small monthly charge, it is a good indication of an applicant’s ability to pay the rent.
5. Improves your relationships with tenants
It can be hard to build a strong professional relationship with your tenants if you are constantly worried about lawsuits or accidents. Insurance will give you the peace of mind to get to know your tenants and see them as more than potential litigants. Ultimately, this will increase your tenant’s satisfaction and retention, which will solidify your cash flow.
You should always require your tenants to submit written proof of insurance each year. This will stop your tenants from letting their coverage expire after their first year as residents; include this stipulation in the rental agreement. By requiring this in writing at the beginning of the tenancy, your tenants will be in violation of their lease terms if they do not provide proof, and you will legally be allowed to evict them. You can also require your tenants to add you to their insurance policy as an “additional interested party,” so that the company automatically notifies you if the tenants allow the policy to expire. Be aware that you do not need to be named in the tenant’s policy as an “additional insured.” This status can cause problems if an insurance claim is made, limit the coverage available to your tenant, and make it difficult for you to submit a claim against the renters insurance if they cause an accident.
From the beginning of the application process, be up front with your tenants about the expectation for tenant insurance and why you require it. Remind your tenants verbally and in the rental agreement that your landlord insurance does not cover their personal possessions against anything except negligence on your part, so therefore, you require them to purchase additional coverage. Make it clear that the insurance is not only good for you, but also in place to protect them and their belongings. Be prepared to answer any questions about insurance, coverage and costs.
Many renters will have no experience purchasing rental experience, so it is best that you come prepared with resources to make the process simple and easy to complete. Advise tenants to check with their auto insurance company for multi policy discounts or give them a personal recommendation to a reputable insurance agent that you’ve worked with before. Be ready to also provide them with a recommended coverage amount. Give them guidelines in the rental agreement that specify the amount of coverage you will require. It’s recommended that your tenants purchase at least $100,000 in liability coverage and $50,000 for personal property coverage. Advise them to document their dwelling and their most important possessions in order to ensure that they are properly covered in case of an accident.
What does the law say?
State and local laws do not require renters to purchase renters insurance; however, you can still legally require your tenants to purchase a policy as a condition of the rental agreement. You can even change the terms of a current month-to-month rental agreement to make insurance mandatory after giving your tenant proper legal notice of the change. In the case of a new lease, you should include it as a written requirement in the signed agreement.
If the lease currently specifies that the tenant must have insurance coverage and they no longer have proof of insurance, you have legal grounds to serve them with an eviction notice for violating the rental agreement.
Lastly, remain aware that you will be held liable by the insurance companies for accidents that occur as a result of your negligence. For example, if your tenant’s apartment is robbed because you failed to provide locking doors and windows, the tenant’s personal property losses will not be covered, and the insurance company will likely take you to court. Similarly, insurance companies will come after you should injuries or other accidents occur as a result of your negligence. Therefore, you should always be aware of your legal responsibilities and maintain a safe and inhabitable environment.