Renter’s insurance may not be a top priority for your tenants who don’t want to take on another expense – but it should be for you.
With all of the uncertainty that the pandemic has brought to rental property owners, it’s more important now than ever to screen tenants carefully and build a mutually beneficial relationship. Renter’s insurance helps protect both your tenant and you, and they foot the bill for the annual premium.
And best of all, most coverage plans are very affordable.
What Is Renter’s Insurance?
Renter’s insurance is a policy that your tenant carries, providing coverage for their personal property, damage to your property, and liability from accidental injuries to any guests and damage of third-party property. Remember, this doesn’t include injuries due to structural problems – those are your responsibility as the landlord.
Your landlord’s insurance covers the actual building itself, but not the contents of an individual unit, nor someone suing for damages if they have an accident in your rental space.
What’s Covered & How Renter’s Insurance Protects Tenants
There are multiple types of coverage for renter’s insurance to protect tenants including:
- Personal property – For example, if your renters’ belongings were stolen, their insurance will cover the cost to replace items. The insurance will also protect personal property under a myriad of conditions including damage from fire, smoke, explosion, windstorm or hail, vandalism, and/or overflow of water. Common items covered including furniture, clothing, small appliances, computes and other electronics.
- Loss of use – If your renters need to vacate for a period of time because of a natural disaster like a flood, storm, or fire, then the insurance will pay for a hotel.
- Liability – Renters will use this portion of their insurance when they accidentally cause damage to your property. A big reason why it’s so important! A security deposit alone may not fix the damage if your tenant accidentally starts a fire or floods the building. But if the renter is insured, the insurance company will pay the damages if they were accidental. Liability will also cover any injuries sustained at the property ranging from tripping on a rug to a dog bite.
- Medical payments – Tenants should have separate medical insurance, but liability also typically covers medical costs associated with any injuries incurred.
- Third-party damage – What if your renter lets the bathtub overflow and causes water damage? Or a stray golf ball crashes through a window? Any of these accidental damages are covered under third-party damage. Renovations gone wrong and backyard debacles that can cause accidental damage will all be handled easily without your tenant needing to come to you.
Your tenant may well thank you for requiring renter’s insurance once they have to make a claim!
How Renter’s Insurance Protects Landlords
While your tenant’s belongings aren’t at the top of your priority list, they can become a problem for you if your tenant decides to sue you because they can’t pay for something that was stolen or damaged. Whether or not you’re actually liable, dealing with lawsuits is expensive and time-consuming and should be avoided at all costs.
Another way renter’s insurance protects you is by ensuring your tenant can continue paying their rent on time. If they can’t afford to pay you because of their losses, that bottom line comes down on you. Or in the case of loss of use, if they have to move out temporarily, if insurance is paying for the interim, there’s a might higher probability of your renter returning and being able to pick back up with rental payments where they left before the damage occurred.
Should Landlords Require Tenants to Buy Renter’s Insurance?
It is industry standard for landlords to require tenants to carry a renter’s insurance policy. If you’re going to be become a savvy real estate investor, include a clause in your lease agreement that details the requirement, your personal homeowner’s policy coverage, and their acknowledgement of their obligation to buy renter’s insurance.
Before signing the lease agreement, demand to see a copy of their declarations page or other proof of coverage. If they can’t produce it, they don’t get to sign the lease and move in.
And in the worst-case scenario, where they show proof of coverage then cancel it or fail to renew it, they directly violate the terms of your lease agreement. You can point to this violation if they take you to court, or if you have to go through the eviction process.
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Where Can Tenants Buy Renter’s Insurance?
We’ve had good experiences with Sure Insurance, as a provider of low-cost but comprehensive renter’s insurance.
But most major insurance brands offer renter’s insurance, from Geico to State Farm to Farmer’s to other insurance corporations that don’t include the word “farm.” Don’t require your tenants to buy a specific brand, but do require them to include liability coverage for property damage or injuries caused to neighbors or guests.
Again, require a copy of your tenants’ proof of coverage before signing a lease agreement with them!
Renter’s insurance protects both your tenant and you as a landlord. Policies cost as little as a few dollars a month, which won’t exactly strain your tenant’s budget. But in the event of property damage or a neighbor getting attacked by your tenant’s dog, your tenant’s renter’s insurance can foot the bill and liability, not you.
Do yourself and your tenants a favor by reviewing all of the benefits of renter’s insurance together and helping them understand the very real value it brings to your relationship as tenant and landlord. Requiring insurance in your lease agreement is an industry best practice that many landlords abide by, and if they refuse to buy a policy, consider it a red flag in the tenant screening process.♦
Do you require renter’s insurance in your rental units? Why or why not?
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About the Author
Digital engagement strategist and online content manager, Grace Keister has been a part of the First Team Real Estate family for 7 years. Since 1976, First Team has helped hundreds of thousands of home buyers and sellers in Southern California achieve their real estate goals.