Calling All Landlords: A Guide to Renter's Insurance

Posted on May 11, 2019

Landlord insurance costs about 20% more than a traditional homeowner's insurance. Don't let this determine whether or not you should get renter's insurance, though. There's a misunderstanding that homeowner's insurance will cover natural disasters or accidents caused by 3rd parties anyways.

That is actually false. This coverage only qualifies for your own homes. As soon as subletting is on the table, that insurance goes away. If someone gets hurt on your property, and you're at fault, you're paying their bills.

Renter's insurance for landlords is a prerequisite for any successful venture. This guide will break down the in's and out's of renter's insurance. We'll help you find cheap renter's insurance, the coverages offered, and how to hold your tenants accountable.

Renters Insurance for Landlords

Okay, first of all, renter's insurance isn't something landlords buy themselves. To avoid confusion, we are guiding future landlords to obtaining it for tenants. This will come in the form of a policy in the lease agreement.

The tenant must agree to sign up for said insurance before moving in. This is a very common practice in the rental industry, even outside of real estate. Renter's insurance usually covers both personal and liability coverage.

This is not something you have to advertise as part of the cost of rent. You show them the unit, lay down the terms and conditions, then drop the insurance fee. Because renter's insurance is an insignificant increase to overall rent ($20-30), it's not make-or-break.

Many prospective tenants see this as a sign of good management. Although, you are transferring responsibility to them and their own insurance. That is represented as granting them more power or control over their home.

What's Covered

This is split up into two major categories: personal and liability coverage. Liability coverages can run into the millions, but the average renter won't need that. You can set the requirements as high as you want but within reason of your demographics.

Personal Coverage

Except if carelessness can be demonstrated, an apartment owner is generally never liable of harm or robbery of an occupant's property. Suppose your occupant's things were stolen because of a break-in that was not caused by negligent security. They'll presumably need reimbursement for their property.

The things that are replaceable, electronics, clothes, jewelry, and furniture, of course. Priceless items, such as photos, family heirlooms, and artwork get a little trickier to claim. More often than not, individual property is covered from the accompanying insurance (subject to conditions and approval, which differs on a state-by-state basis).

This includes natural disasters, like fires, tornados, hurricanes, flooding, hail, and snow. If a complete loss of the unit occurs, insurance will cover the cost of a hotel or new housing. Vandalism, robbery, government accidents, and company negligence are also covered.

For renter's insurance to cover your occupant's stolen property, you must demonstrate basic safety controls in place. For example, entryways and windows that lock, and perimeter security. On the off chance that you don't, you may have to pay for any and all stolen property.

Not requiring renter's insurance for your tenants actually hurts them, too. If they are at fault, with no insurance, there's nothing they can do to recover all their lost valuables. For many tenants, that loss is devastating.

Thousands of dollars of valuables are hard to replace when half your income is going to rent.


Liability Coverage

Accidents happen, just don't let them happen to you as a landlord. Renter's coverage protects you from any damages or injuries incurred by an accident. If they start a fire from a cigarette butt or a cooking disaster, you can get it repaired.

The renter's insurance cuts you a check, while the tenant deals with the consequences of higher rates. This includes other common scenarios, such as injuries due to accidental falls, damage from faulty appliances, and etc. When you start getting into injuries that require medical attention that's up to the cause.

If it was negligence, a fight, or incurred by the occupants, their health insurance takes over.

Third-party Liability

Under liability coverages, there are exceptions if your tenant causes damage to another property. If they're not carrying renter's insurance and they do damage or injury another homeowner, then you're on the hook. That's right, you're going to have to sue your tenant after getting sued by the other homeowner.

This happens more often than you'd think. Tenant nightmares go beyond unruly tenants that pick fights with others. It could happen via flooded bathrooms because they don't use a shower curtain. The might accidentally run over the neighbor's mailbox, fence, or dog.

You might end up with someone who prefers grilling with an open flame that chars or burns the neighbor's property. Maybe they play a game of catch and toss one through their window. Never underestimate the potential for third-party lawsuits, especially in a big city like Ontario or Toronto.

Also, don't fall into the trap of signing up for "additional insured" benefits. These aren't actually benefits for you, the owner. This could reduce liability under the tenants insured, putting you at risk for being sued for remaining damages.

To better understand this, you should talk to an experienced insurance agent.

Why You Need This in the Lease

We've gone over the type of coverage offered by renter's insurance, which most tenants will get. Explaining the benefits and coverage to them isn't enough. Not having to go to court is reason enough to require insurance.

Most people don't know any better or don't care, to understand how liability works. If their stuff gets damaged, they're immediately going to try to get you to pay for it. If they have the required renter's insurance, they'll need to prove their case to them before dealing with you.

This is such a huge deal for landlords who live busy lives. With hundreds or thousands of units, time is a valuable commodity. You can't have people trying to sue you every month for situations they probably caused.

Disasters are Unpredictable

There's no such thing as the perfect response to a natural disaster. Sure, you could become Superman and extend a helping hand by finding them temporary residence. That's unrealistic for many landlords out there, though.

The main goal of accommodating tenants during natural disasters is reducing the burden. Being lenient on rent is not only right, but it also keeps you from getting in trouble with the law. There are landlords out there that used some fuzzy math to try and capitalize on disasters in the past, only to get hit with the book.

Requiring renter's insurance protects your tenants and your investment. If they are unable to agree to these terms, it's probably not going to work out for either party during a disaster.


Getting Renters Insurance

Requiring your tenants to obtain renter's insurance involves careful planning. You can't cash a check on anyone's word. Use this as an opportunity to screen unwanted applicants. Put it in the lease that you require proof of coverage.

Not only that, require this proof during set intervals, i.e. three to four months. This keeps everyone honest and avoids any potential risk of a lapse in coverage. You could require this proof with each month's rent, but it could agitate your best tenants.

Set the perimeters in your lease with clear boundaries. Require proof of insurance at signing. Require a minimum of personal and liability coverage.

Liability coverage of around $100,000 is standard. Personal coverage is up to you, but tenants should have at least $2,500 for low-income areas. The difference in cost for personal coverage of $2,500 and $10,000 is less than $10 per month.

Just like homeowner's insurance, tenants can choose between cash value or replacement cost coverage. There are also different deductible plans to lower premiums. Tenants do have some flexibility while staying covered.

If you think that this cost will deter enough applicants to make it difficult to fill units, offer a caveat. In the lease agreement, state that if the occupant suffers a loss, you won't cover anything. Outside of criminal wrongdoing, the lease is final.

Securing a Successful Tenant

Renter's insurance is your safeguard against bad tenants. It won't weed all of them out, of course, but it will reduce your risk. Advertising that you require renter's insurance goes alongside performing a credit and background check.

This added layer of insurance improves the relationship between tenant and landlord. There are no guessing games when accidents happen, no one is left out to dry during a natural disaster. There's less micro-managing tenants when they have their own insurance.

Take that first step by researching the types of renter's insurance coverage in your area. You can get a free quote on our website right here. This will help you determine what you should specify in the lease agreement.

There's no obligation to buy. Get the answers you need about tenant's insurance.

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