Don’t Require Tenants to Have Insurance? Here’s Why You Should
If you’re not already requiring that your tenants be covered by a renter’s insurance policy, you should think again. Accidents occur and if the tenant does not have insurance, they may not have the funds to cover the damages. Your own landlord insurance may cover things like damage to your property should there be a fire. Or even medical expenses should someone be injured. But, if you need to make a claim, that could mean bigger premiums for you as well as the expense of any deductibles you may have.
Weigh all that against the minimal cost of a typical renters’ insurance policy–which is generally less than $175 per year–and it’s well worth adding a requirement into your leases. For less than $15 per month the renter can feel covered and you can have the peace of mind that you won’t be facing unnecessary expenses if the unthinkable happens.
Still not convinced? Here are a few more reasons why it’s important to make sure your tenants are insured.
It protects your tenants (and their belongings). A standard renter’s policy covers the theft, damage or destruction of the tenant’s personal property within their apartment. Should there be a fire, leak, or even a natural disaster that leads to damage of your tenant’s belongings, their insurance policy will cover replacement. How does that help you? It ensures your tenants don’t come after you for losses caused by the property and they aren’t faced with thousands of dollars in unexpected expenses that could affect their ability to pay rent.
It reduces your liability. When renters are covered by their own insurance policies, if someone is hurt while visiting them, any expenses due to that injury fall to the renter’s policy rather than yours. But if they’re not covered, an injured party could sue the landlord for medical expenses due to that injury–and in today’s litigious world, that’s a common occurrence.
In addition, if a fire starts in a tenant’s apartment or they forget to turn off the kitchen faucet (it has happened) and this causes damage to other units, the renter’s policy kicks in to cover the costs of all repairs to the property. This saves you from filing a claim on your policy and, as mentioned above, reduces the chance your premiums will increase.
It protects you when your renters are negligent. Sometimes renters don’t maintain a property as expected–and that can cost you a fortune in repairs. But if damage is caused by negligence on the tenants’ part, and they’re covered by a renter’s insurance policy, you could have another route to cover those expenses.
For example, in a recent case with one of the properties we manage, heavy rains led to flooding in a finished basement. Once the emergency water extraction, water remediation and restoration was complete, the landlord had spent several thousand dollars. However, if you can demonstrate that the tenants did not keep the drain outside the basement clear of debris, and that this negligence caused the flooding, the tenant’s insurance will kick in and reimburse the landlord for those expenses.
It covers extras so you don’t have to. If the unthinkable happens and there’s a fire or natural disaster that displaces your tenants, you might be required by state law to cover additional living expenses for housing and restaurant meals while repairs are made. However, if your tenants are covered by their own policies, their housing and meals will likely be covered during that time.
Ultimately, requiring that your renters have their own insurance policies ensures an extra layer of protection when the unexpected happens. If you don’t already include a clause requiring tenants to have their own policy, you’re not alone. The Insurance Information Institute conducted a poll that indicates more than half of renters don’t have insurance.
The good news is, you can get 100% of your tenants on board over the next 12 months. Simply update your lease with an insurance clause now and phase in the requirement as leases renew or you find new tenants.
Just one last note: Keep in mind that lease requirements vary by state. Check with your property management company or review your local and state laws regarding leases before modifying your agreements. Columbia Property Management is here to help answer any questions regarding leases. Contact us today for advice on requiring tenant insurance coverage.