As a landlord, property manager, or real estate investor, you may be wondering if you really need to require your tenants to purchase renters insurance. You may also be curious if it’s legal, if your tenants will benefit from it, or how to enforce it.
Not making it mandatory can result in major consequences such as irreparable damages, unwanted lawsuits, financial ruin, and so much more. But making it a requirement is a smart business practice that can protect both you and your tenants from potential legal and financial risks, can attract responsible tenants, and ensures that coverage exists when the least expected happens.
What Does Renters Insurance Cover?
There are four types of coverage included with renters insurance.
Personal Property
Like homeowners insurance, renters insurance provides coverage for replacing personal possessions like furniture, bicycles, computers, and televisions in case of theft, damage, or destruction. The landlord’s insurance policy usually covers the buildings or structures but does not include protection for tenant property losses. By requiring renters insurance, landlords can shift the responsibility for protecting tenants’ personal property onto the tenants themselves.
With personal property coverage, belongings inside and outside rentals are protected. For instance, if a bike is stolen, renters insurance will cover it. However, two caveats apply: A deductible, and second, there may be a limit on coverage for items outside of the rental unit, usually 10% of the total personal property limit.
Liability insurance
In the unfortunate event that someone gets injured while on your rental property and sues, it could potentially have devastating financial consequences….for years. The liability portion of a renters insurance policy offers coverage in these scenarios, paying for injuries to someone else on or off your property.
Additionally, renters liability insurance covers damage caused accidentally to others’ property. In the case of a dog bite, for example, a renters policy may cover the expenses, but it’s important to note that some insurers don’t cover certain dog breeds or dog bites, so it’s essential to check with your agent to ensure coverage.
If legal action is taken, renters insurance usually covers legal representation.
Loss Of Use Or Additional Living Expenses
If your rental property becomes uninhabitable due to a disaster, renters insurance coverage typically includes payment for alternative accommodations during the repair period. This coverage can include expenses such as:
- Hotel bills
- Restaurant meals
- And other costs that exceed usual expenses
Medical payments
Similar to liability insurance, medical payments coverage provides payment if someone on the property gets hurt and the tenant is responsible. However, there is a difference between the two types of coverage. Medical payments coverage will pay regardless of who is at fault for the injury, while liability insurance only pays if you are found responsible by a court. Additionally, liability coverage typically has much higher limits than medical payments coverage.
What Isn’t Covered By Renters Insurance
As with any insurance policy, renters insurance doesn’t cover absolutely everything.
Flood Damage
If the rental is at risk of flooding, tenants will need to pay for replacement items or repairs to their belongings out of their own pocket or purchase separate flood insurance for renters. In most cases, renters insurance won’t cover damage caused by floods, such as from heavy rain or overflowing bodies of water.
USAA is a notable exception to this rule, as its renters policies include flood coverage as a standard feature. USAA renters insurance is available exclusively to active-duty military members, veterans, and their families.
9 Reasons You Should Require Renters Insurance
Renters insurance is not mandated by state or federal law, but landlords have the legal right to require their tenants to have it. As a result, many property management companies and landlords include a mandatory insurance coverage clause in their lease agreements.
Protects Your Tenants’ Personal Property
Having landlord insurance will cover your property, but not tenant-owned property. And you certainly don’t want to be the one blamed if anything happens to their valuables. By making your tenants purchase renters insurance, you can ensure that their furniture, clothing, artwork, electronics, and other personal belongings are protected.
Reduces Risks of Lawsuits
The last thing you want is to be tangled up in a messy lawsuit. For instance, in the case that a fire occurs and spreads to multiple units within the building, tenants may seek legal action against a landlord to recover damages to their personal property. However, if your tenants have renters insurance coverage, the likelihood of such lawsuits decreases significantly since their personal property is already covered by their own insurance policy.
Personal Liability Protection
Renters insurance also comes in handy for guests visiting your property. Without renters insurance, someone who gets hurt on your property may hold you responsible and sue you for damages. By requiring renters insurance, both landlords and tenants can avoid such situations.
Renters insurance policies include personal liability coverage to help cover medical and legal costs if a guest gets injured, which minimizes or even eliminates any expenses that might otherwise incur.
Covers Partial Relocation Costs
In some states, landlords may be required to cover the cost of relocation in the event that your property becomes unlivable. With renters insurance in place though, loss of use coverage can lighten the cost of paying for extra living expenses such as food, lodging, and laundry, making it easier for tenants to manage the disruption caused by the loss.
Helps Identify Reliable Tenants
Many landlords use renters insurance as a way to indirectly screen potential tenants. Landlords believe that tenants who carry renters insurance are more responsible and show concern for their surroundings, making them trustworthy and considerate. Requiring renters insurance can therefore be an effective method to find cautious and responsible tenants.
Encourages Your Tenants To Take Responsibility
Requiring renters insurance can also encourage tenants to be more responsible. When tenants have insurance, they are more likely to take care of their belongings and their home, since they know that they are financially responsible for any damages or losses.
If a tenant has renters insurance, they will be motivated to report problems or damages to the landlord in a timely manner, since they know that their insurance company will want to be notified quickly in the event of a claim.
Keeps Rent Prices Affordable
As a landlord, you may be worried that requiring renters insurance will make your property less attractive or less affordable for potential tenants. However, when tenants realize how affordable renters insurance can be, many find getting a policy attractive regardless of requirements. Unfortunately, most renters simply don’t know enough about renters insurance without education from their landlord or property manager.
Another bonus? When tenants have renters insurance, landlords are less likely to be held liable for damages or losses, which can help keep insurance premiums lower– a savings that can be reflected in your rental rates.
Encourages Healthy Landlord-Tenant Relationships
When tenants know that their belongings are protected, they may feel more comfortable approaching you with concerns or problems. In turn, it can help foster open communication and positive relationships.
And, in the case that a tenant does experience a loss, having renters insurance can help resolve the situation more quickly and smoothly. The tenant can file a claim with their insurance company, and you can focus on repairing any damages to the property.
Offers Tremendous Value For A Low Cost
Many tenants may be under the impression that renters insurance is expensive. However, most policies only cost about $187.00 a year. If you do the math, that comes to approximately less than $16 per month. With a price that low that offers a great deal of coverage, convincing your tenants to sign up for a policy shouldn’t be a problem.
Renters Insurance: A Win-Win For You And Your Tenants
Requiring renters insurance is simply a way to help mitigate risk and protect the financial interests of both the landlord and the tenant. By shifting the responsibility for protecting personal property onto the tenant and reducing the risk of legal liability, landlords can enjoy peace of mind and potentially save money in the long run. With so many advantages, making renters insurance a requirement for your tenants is a no-brainer.
