Tip #57

5 Reasons Why You Should Require Renters Insurance in the Lease

Written on January 28, 2016 by , updated on January 23, 2017

Require Renters Insurance in the LeaseYes, you can require a tenant to buy and maintain renters insurance as a requirement of the lease. Furthermore, doing so certainly benefits the landlord just as much as the tenant.

Many tenants simply assume that a landlord’s insurance policy covers their personal property in the event of damage to the dwelling.

Requiring tenants to purchase their own insurance policy is the only real way to protect their possessions.

For you, the landlord or manager, renters insurance is an extra layer of protection in this litigious world.

For a tenant, it’s relatively inexpensive, often less than $20 per month, and shouldn’t cause a burden except to the most financially strapped of tenants. Most people can simply add it as a discounted rider to their existing auto insurance policy (if they have one).

Since laws vary by state, speak to an attorney about adding a mandatory renters insurance clause to your leases.

Related: The Ultimate Guide to Renters Insurance

Benefits of Requiring Renters Insurance

1. It Mitigates the Threat of a Lawsuit

The top benefit of requiring tenants to purchase renters insurance involves keeping you out of court. When damage occurs to a renters belongings, and if the tenant does not have rental insurance, there’s a high probability the tenant will try to claim some type of landlord responsibility.

Here’s one scenario:

Check out these other examples of actual insurance claims.

Related: Why Landlords are Liable for the Personal Injuries of Tenants

2. It Reduces Your Responsibility

If the worst happens and there’s a fire or other disaster, you might feel responsible for finding your tenants a temporary place to stay. In certain states, you are considered responsible and must provide relocation benefits. To make things worse, while in the midst of dealing with your property damage, you’re also trying to negotiate lodging or other necessities on your tenant’s behalf.

Tenants with renters insurance don’t have to rely on your good will or ability to pay for their temporary housing. That’s their insurance company’s role. You shouldn’t have that hassle while you’re trying to get a handle on your own losses.

3. It Weeds Out Bad Tenants

If you require renters insurance and your applicant complains that he can’t afford it, that’s a red flag before you review the application.

…if an applicant complains about the insurance requirement, it’s a red flag before you even review the application.

If someone can’t afford to pay the low monthly rates for renters insurance, just how close to the edge are they living? What are the odds that they won’t have the monthly rent money?

Renters who live paycheck to paycheck are fine people, but they make horrible tenants.

4. It Covers Your Deductible

If a tenant damages your building, such as inadvertently causing a fire, your insurance policy may pay the repair costs. However, you’re still stuck paying the deductible – which can be a substantial amount of money.

If the tenant does have renters insurance, the policy should cover your homeowner’s insurance deductible – thereby making an unfortunate situation somewhat easier to deal with.

5. It Gives You Peace of Mind

It’s hard to put a price on peace of mind, but knowing your tenants have renters insurance helps fund it.

Realizing you won’t face lawsuits and pay the accompanying legal fees for issues that aren’t your responsibility takes a load off your shoulders. It should also improve your relationship with your tenants, as you’re not viewing them as prospective litigants should they experience personal emergencies.

Sample Lease Clause

Here’s a sample lease clause that you could use to require renters insurance, however please have a local attorney review the clause above for your own usage. I am not a lawyer, nor is this legal advice.

Perform Annual Checks

Just because your tenant showed you proof of rental insurance when signing the lease doesn’t mean he didn’t let the policy lapse.

For best results and continued peace of mind, have your tenant show you proof of insurance annually – typically as a requirement for renewal. If renters insurance is a mandated part of the lease, the tenant’s canceling or allowing the policy to lapse is grounds for termination.

Related: Top 5 Legal Reasons to Evict a Tenant

Get our free newsletter

Join 200,000+ landlords

  • ​Tips to increase income
  • Time-saving techniques
  • ​Powerful tools & resources

50 CommentsLeave a Comment

  • Mak

    in my rental for over 30 years , raised 5 kids in a 3 bdrm, yea I know should have bought my own place but it’s now too expensive, I’m one of those people living payck to payck,when I first moved In the landlord never asked for renters insurance now that she elects to raise the rent significantly I want an upgrade cuz I have old shag carpets, she’s requiring insurance of 300,000 , she has more rentals and rents to students I see them coming n going ,even if they are in for only a year , there is always new paint, new carpets for the next tenants,and I just carry on,if I need to paint I usually do it and don’t ask for a deduction of rent, my question ,do I need to sign a new lease? Am I required now?only a mo – mo for the last 29 yrs

  • jeremy thompson

    not everyone in america is rich I know that’s hard to believe but it’s true. as far as ridiculing people who live paycheck to paycheck, puss on you. I was bullied and abused at home and dropped out and ran away and been struggling ever since. I make 10 An hour cause of my education level society labels me with. not everyone e can go to college. not everyone can have thousands of dollars in bank account. a small few of us are barely hanging o from being g homeless, let alone from killing ourselves due to poverty and lonliness

  • Jersey

    My husband and I live paycheck to paycheck not once EVER have we made a late ANYTHING payment from rent to phone and everything in between…saying people that live paycheck to paycheck are bad tenants…don’t know a darn thing…bad tenant can be anyone

  • Homer

    Odd that the people trying to defend the paycheck to paycheck statement all have the same quality grammar.

  • Patrick

    What other businesses have the luxury of advertising one price then charging a totally different one when all their hidden fees are added up? Most don’t. You landlords should have your own insurance for your business and whatever it may be you factor that into the cost of doing business. If you insist on shoving all business expenses onto the renters then you better sum up some kind of estimate or average and include that in the advertised price. The free market economy only functions properly when consumers have access to accurate information. If you can’t do that then just admit it: you have deceptive business practices motivated by greed.

Join the Discussion

Your email address will not be published. Required fields are marked *

 characters available. Be short, sweet and to the point.