As a landlord, you can include a requirement in your lease that your renters buy and maintain renters insurance. When your tenants have renters insurance, you both win.
Many renters assume that a landlord’s insurance policy covers their personal property in the event of theft or damage. But this isn’t the case.
What does renters insurance cover, and why should landlords require it?
For renters, an insurance policy is the best way to protect their possessions. Renters insurance covers personal property, from items that are stolen in a burglary to those damaged by fire or flood. It also covers accidental damage and related repairs so renters aren’t out hundreds or thousands of dollars from their own pockets.
For landlords, renters insurance adds an extra layer of protection to cover those costs—and against possible legal action. Since laws vary by state, speak to an attorney about adding a mandatory renters insurance clause to your leases.
In Cozy, landlords can require renters carry insurance, and renters can purchase policies from our partner, Assurant.
5 benefits of renters insurance for landlords
1. It reduces your legal, financial, and personal responsibility
If the worst happens, and there’s a fire or other disaster, you might feel responsible for finding your renters a temporary place to stay. In some states, you’re considered responsible and must provide relocation benefits. So in the midst of dealing with property damage, you’re also trying to negotiate lodging or other necessities on your renters’ behalf.
Tenants with renters insurance don’t have to rely on your goodwill or ability to pay for their temporary housing. That’s their insurance company’s role: to minimize these worries while you’re trying to get a handle on your own losses.
2. It covers your insurance deductible
If a renter causes damage to your building, such as inadvertently starting a fire, your insurance policy may pay the repair costs. However, you’re still stuck paying the deductible—which can be a substantial amount of money.
If the renter has insurance, though, the policy should cover your homeowner’s insurance deductible. This makes an unfortunate situation somewhat easier to manage.
3. It mitigates legal issues
Another key benefit of requiring renters insurance involves keeping you out of court. When damage occurs to a renter’s belongings and they don’t have insurance, it’s possible that some of the responsibility will fall to you and your insurance policy.
Here’s one scenario:
A renter throws a party, and a guest is injured. The renter doesn’t have their own insurance, and the injured individual has no or inadequate health insurance. The injured person—or the hospital—files a claim against the landlord.
Even if the landlord’s insurance company agrees to pay, substantially higher premiums are sure to follow. If your renter did have an insurance policy, you (and your insurance) would be out of the picture.
4. It helps you screen tenants
If you require renters insurance as part of your lease and your applicant says they can’t afford it, take the time to ask additional questions.
For example, does the applicant understand the benefits of renters insurance and know what it costs? And if they can’t afford to pay for renters insurance, are they able to comfortably afford the monthly rent?
This is also a good opportunity to educate potential renters about their insurance options.
Applicants might not know that renters insurance is a relatively inexpensive (often less than $20 per month) investment, and many people can simply add it as a discounted rider to their existing auto insurance policy if they have one. You can also direct them to Cozy’s renters insurance.
Ultimately, both you and your renters want to do what makes financial sense, so if an applicant isn’t able to cover both rent and insurance each month, they might not be a good fit for your property.
5. It gives you peace of mind
It’s hard to put a price on peace of mind, but knowing your renters have insurance helps fund it.
Realizing you won’t face legal fees for issues that aren’t your responsibility takes a load off your shoulders—as does the knowledge that your renters’ belongings and your property are covered in the event of loss or damage. This relief will likely improve your relationship with your renters.
Include a renters insurance clause in your lease
Here’s a sample lease clause that you could use to require renters insurance. Of course, I’m not a lawyer, nor is this legal advice—so please have a local attorney review the clause for your own use.
REQUIRED RENTAL INSURANCE. Landlord, Owner, or Manager does not maintain insurance to cover the personal property of Tenant(s) or personal injury to Tenant(s), their guests or occupants. Tenant(s) is required to obtain rental insurance in the amount of $300,000 public liability and $50,000 property damage from whatever cause to his person or property and to the person or property of those on the premises with his consent, and Tenant(s) shall indemnify and hold all other parties harmless from all claims arising from any such injury or damage throughout the term of the tenancy. Tenant(s) is responsible to obtain insurance within seven (7) days of residing on the Premises. Should any injury or damage occur within the first seven (7) days or prior to obtaining rental insurance, Tenant(s) shall indemnify and hold all other parties harmless from all claims arising from any such injury or damage.
Check for proof of renters insurance every year
Even if your renter showed you proof of rental insurance when signing the lease, they may not remember to renew it when their policy lapses.
For continued peace of mind, have your renter show you proof of insurance annually as a requirement for lease renewal. If renters insurance is a mandated part of the lease, canceling or allowing the policy to lapse may be grounds for termination.
When it comes to renters insurance, both you and your renters have the same goal: to protect your respective property and your financial well-being.