Why Landlords Should Require Renters Insurance

For the longest time, we did not require renter’s insurance.  Although we had a disclosure within the lease where we recommended coverage, we did not require it.   Nevertheless, now we are explaining our change of heart and why every landlord should require rental insurance from their tenants.

Why didn’t we require renter’s insurance on the units we owned?  Unfortunately, we thought it was only to cover the tenant’s personal property in a fire or flood (think broken water pipe) event.  Recently, we sat down with our insurance specialist, Michael Bravo of The Bravo Agency, to learn more about why landlords should require renter’s insurance.

Liability, Liability, Liability

Yes, I know, liability is the main reason to hold any insurance policy.  Keep in mind, you do not have a controlling interest in your tenant’s insurance policy.  What you do get as a landlord is peace of mind as it covers tenant caused damages which take place on YOUR property.

Standard policies cover:

• Personal Property Loss
• Temporary housing and living expenses if their unit is found uninhabitable
• Liability in the event a guest gets injured while visiting a tenant’s unit

Personal Property Loss (Benefits Tenant)

Here are several examples of how your tenant’s personal property is covered in the event of damage or theft:

• Tenant in the unit above overflows their bathtub, the water comes through the ceiling, and damages another tenant’s electronics.
• Theft of a tenant’s bike from property grounds.
• There is a fire in the building, and all personal property is damaged from water or smoke.
• A tenant’s personal laptop is stolen from their car.
• Water pipes break, and water damages all contents within a unit.

Additional Living Expenses

If your tenant’s unit is deemed uninhabitable, their renter’s insurance should cover the cost of temporary housing, food, dry cleaning, etc.  Additionally, it may even cover the cost of a moving company.   In most cases, your commercial property insurance coverage usually does not provide this for tenants.

Extended Liability

This portion of the policy will cover such instances as a visiting guest who gets injured within the unit or has damages caused by one of your tenants.  For example, the tenant drops a bottle on their foot and breaks a toe).  Moreover, it also might cover dogs in the event their dog bites you, a guest, or neighbor.  Note: Make sure tenants confirm pets are included in their coverage.  Many policies do not cover dogs or have limitations on weight and size.

Furthermore, should there be a lawsuit from bodily harm or injury, the insurance likely will cover a portion of medical and legal fees as well.

Why do these instances affect you?  To demonstrate, let’s say you rent to a tenant who owns a dog and said dog bites a passerby.  On the whole, you can be liable to that victim by allowing the tenant to have the dog on your property.  Also, another example would be a delivery person who trips and gets injured on a toy or hose the tenant left in the walkway.  Keep in mind, if you as a landlord do not require the tenant have rental insurance, the liability can fall to you, as the property owner.

It should be noted that a separate rider for natural flood and earthquake damages may be required.  As a practice, standard policies do not typically cover them.

Cost of a Policy

In general, the cost of an insurance policy is usually very low per month.  Tenants pay in the range of $20 – $30 depending on the amount of coverage and where they reside.  Interestingly, for an additional few dollars more per month, the tenant can secure $300,000 – $500,000 of coverage.  Depending on the property, we require a minimum liability coverage of $100,000.

Why is the amount of coverage necessary for you?  Damages caused by a tenant allows your liability insurance to subrogate funds from the renter’s insurance policy.  This helps with the payout to cover damages not being all out of their pocket.  For instance, if you own a duplex and one unit has an extensive kitchen fire, $100,000 is not likely enough to pay for all the damages where $500,000 might be.  Therefore, your insurance company would be able to recoup all or most of the liability they had to pay out for damages.

Despite damages which you are found responsible, the tenant’s rental insurance will replace their belongings and pay for temporary housing.  Commonly, these two items are not typically covered under a landlord’s commercial liability policy.

In Conclusion 

As you can see, being a landlord requiring rental insurance for your tenants is a huge plus for peace of mind.  Adding the task of  monitoring each tenant’s policy to your task list is a small price to pay.   Make sure your lease clearly notes that:

• You require renters insurance.
• The minimum coverage you require.
• When they need to have the policy in place by.  For timeframe, some landlords require proof prior to signing the lease, others are a little more lenient and ask it be fulfilled within 14 days of signing or entry to the unit.
• You or your legal entity are noted as an additional insured.

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