As a landlord, you should encourage your renters to explore insurance.
While your insurance covers the property, it does not protect your tenant’s property. Renters insurance covers your tenants’ belongings if they are lost, stolen, or destroyed. Should something go awry in your building, here’s what you need to know about rental insurance—what it covers, what it doesn’t, and what you should do to shore up the gaps.
What is Renters Insurance?
Most people don’t realize the value of what they own until disaster strikes, and they have to replace everything. Furniture, electronics, appliances, kitchenware, clothing, jewelry, collectibles, and decorative items can add up to tens of thousands of dollars. State Farm estimates the average person has over $35,000 worth of belongings unlikely to be covered by a landlord’s policy. That’s a lot to risk! This is why renters insurance is important.
Renters insurance is an inexpensive policy tenants take out to cover their stuff. In the event of a disaster, like a fire or a burst pipe, rental property Insurance pays all or part of the cost of lost goods. Depending on the policy, it may also cover theft, even from a car in the parking lot. The amount insurance will pay depends on the policy chosen by renters.
In addition, renters insurance policies often cover emergency relocation and housing if the unit is unusable after a disaster.
That Sounds Great! Why Doesn’t Every Renter Get Insurance?
Believe it or not, the most common reasons for not getting renters insurance are lack of knowledge.
- The property has good security, and renters insurance only covers break-ins.
- The landlord has property insurance, and renters think it covers their house or apartment.
- They think renters insurance is too expensive.
- They don’t have anything of value to insure.
- They don’t know what renters insurance covers.
As a responsible landlord, you’re in a unique position to provide valuable information to renters that benefits you at the same time.
What Renters Should Know About Renters Insurance
If you’d like to offer recommendations to your tenants, there are a few things to look out for when researching insurance for a rental property. Tenants need to read carefully and understand the limitations of the policy and what coverages they’re getting.
There are two different forms of renters insurance. According to the National Association of Insurance Commissioners (NAIC):
- Broad Form is the most popular renters insurance sold. It’s typically a low-cost policy that includes coverage for damage from fire, lightning, explosion, smoke, vandalism, theft, and water-related damage from property utilities…and not much else.
- Comprehensive Form coverage bundles three types of coverage to cover your stuff, living arrangements after a covered loss, and liability for injury to a guest or damage to their property.
Property rental insurance may not cover natural disasters. For example, flooding that’s a result of a broken water pipe may be covered, but if your unit is flooded due to a storm or rising river water, it may not. Things like earthquakes, hurricanes, and wildfire damage may not be covered. In an area prone to flooding or other natural disasters, they may be able to tack on optional coverage at additional cost.
Coverage has limits. If your renter has expensive jewelry or a valuable piece of art, they will need specific coverage for those items. No matter what’s inside your home when disaster strikes, insurance will only pay up to defined coverage limits.
Discounts on renters insurance may be applicable if the unit has safety features. Smoke detectors, burglar alarms, fire extinguishers, sprinkler systems, and other safety features can lower the cost of insurance. In fact, as a landlord, you may be able to broker a better deal for your tenants by partnering with a reliable company.
Tenants should document what they own. To expedite claims, an online document with photos, descriptions, and value of everything they own will help them make a detailed claim after a disaster, and it will also help them decide how much coverage they need.
Actual cash value vs. replacement cost are arguably the most important words on the contract. Actual cash value pays the value of lost items less depreciation, while replacement value covers the full cost of replacing the item. This is critical information. For example, if a laptop you paid $4k for 2 years ago is stolen, the replacement value would cover a laptop today with comparable features, which may cost more than $4k. Actual cash value would pay out only what a used laptop is worth, which may be deemed less than half what you paid.
Benefits of Renters Insurance for Landlords
So why should landlords care if tenants have renters insurance? For starters, you can clear up some common misconceptions. Many renters mistakenly believe that your landlord insurance for the rental property covers their personal belongings—and it doesn’t. And a lot of people assume that insurance for a rental property is expensive—and it’s not. So, you’re doing them a favor by encouraging, or even requiring, renters insurance.
But being a good landlord isn’t the only reason to pass on the information. Insurance for rental properties protects you as well. When your tenants have rental property insurance:
- It helps you vet tenants. If you tell prospective tenants about renters insurance and they say they can’t afford the $16 per month (on average) or refuse to follow your requirements, they might not be desirable tenants.
- Tenants and landlords are protected from legal liabilities. Renters insurance covers injuries, legal fees, and damages if a visitor has an accident while in the unit up to the maximum liability coverage limits outlined in the policy.
- It covers some property damage. Tenants aren’t always at fault. If a tenant in one apartment accidentally starts a fire and the apartment next door is damaged, the neighbor’s renters insurance will cover the damage up to the policy limits. Intentional damage, on the other hand, may not be covered.
- It covers pet damage. Pet-friendly apartments are popular, but allowing pets carries a risk. Pets are messy and can be destructive…and some bite. If the unit’s carpet is ruined or a dog bites a visitor, liability is covered by the renter’s insurance, not yours.
- It pays relocation expenses. In some states, the landlord can be held responsible for relocating tenants following a disaster that damages units. However, if your renters are insured, temporary relocation assistance may be included, which takes that responsibility off your plate.
- It lowers your insurance premiums. Requiring renters insurance reduces your liability. You’ll make fewer claims, and your costs will stay down.
- It covers your deductible. When a renter damages your property, your insurance policy may have to cover it, and that means you’re stuck paying the deductible. The tenant’s renters policy lowers your financial responsibility by covering your deductible.
Should You Require Rental Property Insurance?
The short answer is maybe. Most states allow you to require your tenants have rental insurance as a condition of the lease, but not all, and some put limits on what you can require based on income. Before you make it a policy, be sure to understand the local laws. Of course, you can offer sound advice in any state.
Assuming it’s legal in your area, rental insurance benefits both you and your tenants, but you should weigh whether it’s a deal-breaker for prospective tenants. If you cater to upscale clients and require high income and good credit scores, odds are it won’t be a problem. If, on the other hand, your renters are low-income and struggling to make ends meet, they may not be able to afford even a few extra dollars.
For more tips for property management and apartments, visit the Boiler Room Blog, or contact us to see how we can help with your hot water needs.