For most tenants, buying renters insurance isn’t a top priority, especially during the stress of moving to a new home. Even if it’s a requirement in their lease, they still might view a policy as an unnecessary expense. But having good coverage matters for you and for them, something they might not discover until it’s too late.
During my 11 years as a landlord, I’ve seen my tenants affected by theft, kitchen fires, and accidental property damage. In two cases, bikes were stolen off the property in broad daylight. Fortunately, one of those bike owners had renters insurance and was able to replace the bike within a few days, but the other tenant didn’t think renters insurance was worth it. After her bike went missing, she threatened to sue me for not providing a dedicated storage shed for her bike. Frustrated and angry, she didn’t renew her lease and I lost a good tenant.
Another time, one of my tenants fell asleep in the bathtub while intoxicated. Luckily, she didn’t drown, but she did forget to turn off the water, which overflowed and ruined my hardwood floors and the floors and ceiling of the unit below. While my homeowners insurance would have covered my property damage, I didn’t have to file a claim because my tenant carried a renters policy with liability coverage. Because she was negligent and liable for the damages, her policy paid to repair both units.
I’ve learned my lesson; renters insurance is essential. It’s an easy and affordable way for your tenants to be covered from a plethora of losses and damages. But what exactly is renters insurance? What exactly does it cover?
What’s renters insurance?
Renters insurance is an insurance policy, carried by the tenant, which provides coverage for the tenant’s personal property, property damage, and liability from accidental injuries to guests and damage to third-party property. Most policies are broken down into two parts; personal property coverage and liability coverage.
Requiring tenants to obtain and carry renters insurance is an industry standard and best practice. When you require renters insurance, you are requiring liability insurance, which is an easy way to transfer certain risks away from you, the property owner.
Best of all, renters insurance typically only costs your tenant about $20 a month, and it’s available from most insurance providers and some property management tools.
Since a homeowner’s policy won’t cover a tenant’s personal belongings, I think all landlords should require their tenants to carry renters insurance. While your tenant’s belongings might not be important to you, they can become a problem if your tenant decides to sue you (whether or not you’re actually liable, dealing with lawsuits is expensive and time-consuming). Or, if they can’t afford to pay rent because of their losses.
I require my tenants to get a minimum of $100,000 in liability and $15,000 in personal property coverage, both of which are detailed in my leases.
What does it cover?
When tenants benefit from renters insurance, landlords will too, directly and indirectly. When it comes to renters insurance, these are the types of coverage:
Unless negligence can be proven, a landlord is usually never responsible for damage or theft of a tenant’s personal property.
Let’s say your tenant’s belongings were stolen as a result of a break-in that was no fault of yours. They’ll probably want (or need, depending on what was stolen) to replace the missing items.
Common high-priced items include:
- Clothing (with certain limits)
- Electronics (including phones)
- Small appliances
Most of the time, personal property is protected from the following types of damage under renters insurance policies (subject to various coverage limits, conditions, and exclusions, which can vary on a state-by-state and policy basis):
- Fire or lightning
- Windstorm or hail
- Vandalism or malicious mischief
- Accidental discharge or overflow of water or steam
Note: For renters insurance to cover your tenant’s stolen property, you (the owner or manager) must provide at least the minimum security measures for your unit, such as doors and windows that lock. If you don’t, you might be responsible for your tenant’s stolen property.
If your tenant didn’t have renters insurance, they’d have to pay for all those items. And if they’re living paycheck to paycheck, as 49 percent of Americans do, they might not be able to afford to pay the rent and replace their belongings.
If you require your tenants to have renters insurance, you can help ensure that your tenant will stay financially secure while they go through the process of replacing their belongings.
Loss of use
Along those same lines, if your property is damaged from a natural disaster, such as a fire, your tenant would probably need to move out while repairs are being done. Renters insurance would pay for their hotel or temporary housing.
The liability part of renters insurance kicks in when the tenant accidentally causes damage, such as starting a fire by smoking or leaving a pot on the stove overnight.
The security deposit probably won’t cover those types of damage, so you might feel like you need to resort to suing the tenant for the cost of repairs. But if the tenant has renters insurance, their insurance company will pay you for the damages, assuming the damage is caused by a covered incident.
Liability coverage also includes certain injuries sustained at the property that were the tenant’s fault, such as someone falling because of clutter on the floor or the tenant’s dog biting someone.
Liability coverage also typically insures against medical costs associated with an injury of a guest, although it won’t cover any medical costs incurred by the tenant or household members. It’s expected that your tenants have a separate medical insurance policy.
Third-party property damage
If a tenant accidentally damages another property or dwelling, the other owners might come after you (or your home insurance), if your tenant doesn’t have a renters insurance policy. Damages to neighboring properties are more common than you might think. Some common examples are:
- Overflowing a sink, bathtub, or waterbed and causing water damage to the unit below
- Driving a car or lawnmower into a fence
- Outdoor grill accidents or propane tank explosions
- Stray baseball through a window
Why you should require renters insurance
It mitigates the threat of a lawsuit
Avoiding going to court is the top benefit of requiring tenants to have renters insurance. When damage occurs to a tenant’s belongings, if the tenant doesn’t have renters insurance, there’s a chance they’ll try to claim that you, as the landlord, are responsible.
It reduces your responsibility
If the worst happens, and there’s a fire or other disaster, you might feel responsible for finding your tenants a temporary place to stay. In certain states, you are responsible for that cost and you must provide relocation benefits. So, while in the midst of dealing with your property damage, you might also be trying to negotiate lodging or other necessities on your tenant’s behalf.
It weeds out otherwise unqualified tenants
If you require renters insurance and your applicant can’t afford it, that’s a red flag. If someone can’t afford to pay the low monthly rates for renters insurance, just how close to the edge are they living? What are the odds they won’t be able to pay the rent?
It may cover your deductible
If a tenant damages your building, by doing something like inadvertently causing a fire, your insurance policy may pay for the repair costs. However, you’ll still have to pay the deductible, which can be substantial. If the tenant does have renters insurance, the policy may cover your homeowner’s insurance deductible, which could make an unfortunate situation less of a hardship.
It gives you peace of mind
Realizing you won’t face lawsuits—or the accompanying legal fees for issues that aren’t your responsibility—will feel like a relief. It may also improve your relationship with your tenants, because you won’t view them as prospective litigants during an emergency or accident.
How to get renters insurance
While the value of renters insurance is unquestionable, the logistics can be a pain. You should require proof of coverage (usually a declaration or certificate) and make sure the insurance policy remains active during the entire tenancy.
Request your tenants show proof of renters insurance by move-in day or shortly thereafter, within a week or two. If you mandated renters insurance in the lease, if a tenant fails to obtain a policy, they would be violating the lease, which is grounds for termination.
Require insurance in your lease
I strongly recommend that you add a clause to your lease that requires your tenants to obtain renters insurance. It’s wise to add a clause in your lease that discusses the mandate, your homeowners policy coverage, and their acknowledgement of the risk by not carrying any insurance.
Whether or not you choose to require renters insurance, you should at least let your tenants know that your landlord’s insurance policy won’t cover their belongings. Many tenants don’t understand this fact; they might assume your policy covers their stuff.
Renter’s insurance is something every tenant should have. It’s affordable and covers them and their belongings. Do yourself, and your tenants, a favor by helping them understand why renters insurance matters. And don’t forget to require it in the lease.