The most practical reasons landlords and property owners alike should always require tenants to maintain renters insurance (with examples!)
One of the common questions we receive is; What is the importance, or, the reason to have a tenant maintain renters insurance throughout their tenancy? Or, another common answer is; We require it in the lease so, our tenants should have coverage, right? Wrong!
Landlords should always require their tenants to carry some form of renters insurance and include a clause or amendment requiring it within the lease. Moreover, implement a program that verifies and confirms coverage annually. The cost to the tenant is oftentimes less than $15 a month, and although not required by law, this minor adjustment has far more benefits than is commonly understood. Without further adieu, here are the real reasons below.
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Avoid Uncertainty For Tenant’s Belongings
Regardless of circumstance or type of property loss sustained on the premises, it will be clear the tenant is responsible for their own personal property. There are always situations where it’s easy to point fingers at whose fault it is (landlord or tenant) or it’s easy to say a theft loss occurred from the lack of responsibility of a landlord in protecting the tenant’s belongings. Similarly, some losses may be an uncontrollable natural disaster impossible to peg on the landlord or tenant. Whether it’s the peril of fire, water, theft, or anything else, the tenant has the ability to recover damage to their contents and it’s blatantly clear that the landlord is not responsible.
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Tenant’s Having Financial Certainty
Quite possibly one of the most important, requiring renters insurance typically will ensure that a tenant is financially responsible for themselves and can continue to pay rent on time. With having personal liability included in renters insurance policies, if a tenant is responsible for damage or injury to a third party, including damage to your unit or another tenant, this would be covered under their policy directly. Not to mention, damage or injury they would be liable for caused by their pets! Typically in a situation where your dwelling is damaged by the said tenant, it’s highly likely you will need to file the claim through your landlord policy first. However, expect that your carrier determines negligence for the fault of the loss and will, respectively, recover the funds from that party. You can almost certainly expect to get your deductible back in this case. A smart rule of thumb is to have the tenant’s liability match or exceed the cost to repair the dwelling structure.
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Relocation Due to Loss
Your tenant will have coverage for loss of use. In the event of loss or fire to the unit, making it uninhabitable, coverage will exist for the tenant to have additional relocation funds while the unit is repaired. Provided, it’s in excess of their regular expenses to temporarily move if needed.
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Mitigates Possible Premises Litigation
More specifically, reduces the chance of a premises-specific lawsuit. In the case that tenants bring guests over, if a premises injury occurs within their responsibility, it’s likely that their renters would be the primary policy for coverage and not the landlords. This can go either way depending on the incident, so it’s best to always know your landlord policy is solid as well.
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Possible Policy Discounts
Most personal landlord and commercial property policies for apartment buildings as well as other habitational risks offer additional discounts for requiring renters insurance and annual signed leases. Other discounts can include criminal background and credit checks, skip checks, and protective devices installed.
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BONUS
You now have a substantially more qualified tenant. Nothing further needs to be said here.
Requiring tenant’s obtain renter’s insurance is oftentimes undervalued, yet could be a landlord’s smartest caveat in preserving their property or business. Out of everything mentioned above, it provides both the tenant and landlord with a much better working relationship.
Implementing an Annual Renters Insurance Verification Program
A more thorough practice that can be put into place is having a formal renters insurance maintenance plan. Having a system to verify renters insurance is in place annually is critical. Most property management software systems (RentRedi.com, RentecDirect, etc.) allow for an annual reminder that could be as simple as an email or open task set for the future. Finally, a practice that is most often done incorrectly; is request that the landlord is listed either as an A.) an additional insured (If available) or B.) an additional interest or third party designee in receiving cancellation notifications. This way, the landlord would be notified by the insurance carrier and it should make it substantially easier to confirm coverage in the future if the lease is renewed or there is a mid-term/non-pay cancellation taking place.
Hoping this provides some additional urgency and clarity to current property owners. Any further questions, feel free to reach out to an agent at Broadway Insurance today!
