Many renters do not understand the value of good insurance coverage until it is too late. Most tenants do not consider renters insurance a priority, especially when they first move into a new place, even if their lease requires it. However, requiring renters insurance is not only important to tenants it is also important to you, the property owner. Requiring renters insurance is not only an industry standard it is the best way to transfer certain risks away from you, the property owner.
What is renters insurance?
Renters insurance is a policy of insurance obtained and carried by the tenant and typically consists of two parts, personal property coverage and liability coverage. Most insurance companies offer it for a low rate, usually around $20.00 a month. As a property owner, when you require renters insurance you are requiring the liability coverage aspect, which transfers certain risks away from you the land owner to your tenant. However, both types of coverage ultimately benefit you, the property owner, as discussed below.
1. Personal Property Coverage
A property owner is not usually responsible for theft or damage to a tenant’s personal property unless that theft or damage can be directly linked to the property owner’s negligence. A property owner most likely will not be considered negligent for theft as long as minimum-security measures, such as functioning locks on doors and windows, are provided. Similarly, as long as the property is kept in good shape, a property owner should not be found negligent and thus responsible for any damage to a tenant’s personal property resulting from natural occurrences such as fire, lightning, windstorms, hail, smoke, explosions, or accidental discharges of water.
If theft or damage to personal property occurs a tenant will most likely want and need to replace the items that were stolen or damaged. As long as the break-in or damage was through no fault of the property owner, renters insurance will help replace items such as clothing (within limits), computers, furniture, and electronics (including phones) (subject to coverage limits, conditions and exclusions as allowed by state law and according to the individual policy). This is important to you, the property owner, because even though you might not be financially responsible to replace such items, without renters insurance your
tenant would be required to pay to replace all of the stolen or damaged property out of his pocket. These unforeseen expenses could render your tenant unable to both replace the necessary items and pay the rent. By requiring your tenants to carry renters insurance you are helping ensure your tenant stays financially viable (ie. is able to pay the rent) while simultaneously replacing valuable personal property.
Additionally, if your property is damaged from a major leak or fire, as enumerated above, your tenant will most likely need to move out of your property temporarily while the property is repaired. Renters insurance might provide the tenant money for temporary housing or a hotel stay during the repair time so neither of you would have to pay out of pocket for the temporary relocation. (However, the owner may be responsible in certain circumstances.)
2. Liability Coverage
The liability coverage portion of renters insurance covers accidental damage to the property owner’s or another’s property caused by a tenant’s negligence and certain bodily injuries to others sustained at the property due to the tenant’s negligence. Although security deposits are typically required at move-in to cover damage to your property, most security deposits are not large enough to cover major damage, such as a fire caused by cooking or flooding caused by a tenant leaving on a faucet. However, renters insurance would have enough coverage to pay for such damage and should be required just like a security deposit in case the tenant accidentally causes major damage to your
The liability portion of renters insurance also protects you, the property owner, against claims for medical costs by third parties if, as a visitor to your property, they are injured as a result of your tenant’s negligence. (For example, if a visitor falls due to the tenant’s clutter or is bitten by the tenant’s dog.) *Note, this medical coverage does not extend to your tenant or other household members, as they are expected to have their own medical
And finally, liability coverage extends to third-party property damage caused by your tenant’s negligence such as an overflowing sink leaking into another unit; another’s window being broken by a stray ball; damage to a neighbor’s fence; or an outdoor grill explosion. Without renters insurance, the other property owner would have no choice but to seek reimbursement from you but if your tenant has renters insurance the other property owner can make a claim against your tenant instead.
Renters Insurance Should be Required in the Lease
You should require renters insurance in the lease, that way if your tenant fails to obtain it they are in violation of the lease, giving you grounds to terminate it. Include a clause in the lease that discusses the minimum coverage requirements (at least $100,000 in liability and $15,000 in personal property coverage); your homeowner’s insurance coverage; and the tenant’s acknowledgment of the risks if they choose not to carry renters insurance. Proof of renters insurance should be provided to you by move-in day or shortly thereafter. (Note: Even if you choose not to require renters insurance, it is a good idea to inform your tenant that your landlord policy does not cover their personal property since many people are unaware of this fact.)
Requiring renters insurance can mitigate the threat of lawsuits by reducing or eliminating your responsibility in certain instances, such as when a visitor is injured on your property as a result of your tenant’s negligence. It can also help ease your mind if, through no fault of your own, a tenant’s property is damaged or stolen, as you can rest assured knowing their insurance will cover the replacement costs and they will not try to come after you. Additionally, if your insurance covers the cost of repairs due to a fire or other disaster inadvertently caused by your tenant their renters insurance might cover the cost of your deductible, saving you that out of pocket expense. Lastly, requiring renters insurance might help to weed out financially undesirable tenants because if they are unable to afford
the nominal premium payments they are likely to have trouble paying their bills, including rent.