The Ultimate Guide to Renters Insurance

Written on November 24, 2015 by , updated on December 9, 2016

Renters InsuranceAlthough I have a clause in my standard lease that requires tenants to get renters insurance, I have yet to rent to anyone who is excited about buying it.

For most tenants, it’s a formality. To them, it’s just one more expense. Most tenants don’t realize the value of renters insurance until they need to make a claim.

Most tenants don’t realize the value of renters insurance until they need to make a claim.

Since a homeowner’s policy won’t cover a tenant’s personal belongings, I think all landlords and managers should require their tenants to carry renters insurance.

For the record, I require my tenants to get a minimum of $300,000 in liability, and $50,000 in personal property coverage.

My Recommended Coverage:

  • $300,000 in liability coverage
  • $50,000 in personal property coverage

What is Renters Insurance?

Renters insurance is an insurance policy, carried by the tenant, which generally provides coverage for the tenant’s personal property and liability from accidental injuries to guests and property damage.

Requiring tenants to obtain and carry renters insurance is an industry standard and best practice. “When you require renters insurance, you are really requiring liability insurance,” says Eric Narcisco, CEO of Effective Coverage.

It’s an easy way to transfer risk away from the owner.

Best of all, renters insurance is very affordable, typically about $15-$20 a month, and is available from all major insurance companies.

However, some municipalities do prohibit owners from mandating renters insurance policies for tenants in rent-controlled buildings. In that case, requiring renters insurance might be more trouble than it’s worth. However, you certainly could still recommend it and make the tenant sign a liability waiver if they choose not to obtain it.

Note: For renters insurance to cover your tenant’s stolen property, you (the owner or manager) must provide at least the minimum security measures for your locale – such as locking doors and windows. If you don’t, you might be responsible for your tenant’s stolen property.

What Does it Cover?

When tenants benefit from renters insurance, landlords might, too … directly and indirectly.

There are multiple types of coverage with renters insurance:

1. Personal Property

Unless negligence can be proven, a landlord is usually never responsible for damage of theft of a tenant’s personal property.

Let’s say your tenant’s belongings were stolen as a result of a break-in that was no fault of yours. They will probably want (or need, depending on what was stolen) to replace the missing items.

Common high-priced items include:

  • clothing
  • furniture
  • computers
  • electronics
  • art and jewelry (sometimes with a rider)
  • appliances and
  • other belongings

Most of the time, personal property is protected from the following types of damage:

  • Fire, lightning
  • Windstorms, hail
  • Explosions
  • Riots
  • Damage by aircraft or vehicle (not your own)
  • Smoke damage
  • Vandalism
  • Theft
  • Volcanic eruption (yikes!)
  • Falling objects
  • Weight of snow, ice, sleet
  • Damage from steam-heating/water-heating appliances/systems
  • Leakage or overflow of water or steam
  • Freezing of plumbing, heating, air conditioning
  • Short-circuit damage caused by electrical appliances

If your tenant didn’t have renters insurance, they’d have to shell out for all those items. And if they’re living paycheck to paycheck as 76 percent of Americans do, they might not be able to afford to pay the rent and replace their belongings.

If you require your tenants to have renters insurance, you help ensure that your tenant will be able to pay the rent and replace their belongings.

2. Loss of Use

Along those same lines, if your property were damaged from a natural disaster, such as a flood, storm, or fire, your tenant will probably need to move out while repairs are being made. Renters insurance would pay for a hotel. But if your tenant didn’t have renters insurance and couldn’t afford a hotel, they might make other arrangements and could be less likely to return to your property.

Related: The 6 Most Important Clauses in a Landlord Insurance Policy

3. Liability

The liability part of renters insurance, the part of most interest to landlords, which Eric Narcisco mentioned earlier, kicks in when the tenant messes up, such as by causing a fire by smoking or leaving a pot cooking on the stove overnight.

The security deposit probably won’t cover those types of damage, so you’ll likely have to sue the tenant. If the tenant has renters insurance, their insurance company will pay you for the damages, assuming the damage is caused by a covered incident.

Liability insurance also covers injuries sustained in the property that were the tenant’s fault, such as someone falling because of clutter on the floor or the tenant’s dog biting someone.

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

4. Medical Payments

Liability coverage will also cover medical costs associated with an injury of a guest – although it won’t cover medical costs of the tenant or household members.

5. Third-Party Property Damage

If a tenant accidentally damages another property or dwelling, the other owners might come after you (or your home insurance) if your tenant does not have a renters policy. Damages to neighboring properties are more common than you would think. Some common examples are:

  1. Overflowing a sink/bathtub/waterbed and causing water damage to the unit below
  2. Unapproved renovations gone bad
  3. Driving a car or lawnmower into a fence
  4. Bottle rocket catching fire to a neighbor’s roof
  5. Outdoor grill accidents/propane tank explosions
  6. Stray baseball through a window

It Can Be a Hassle

It definitely can benefit everyone if tenants carry renters insurance, but the administration aspect can be a pain. You’ll need to “require a certificate, track the coverage, and make sure the insurance is active the whole tenure,” says Narcisco.

The best practice is to get a copy of the policy or proof of coverage once a year, and get the policy to align as closely with the lease as possible. Do that by requesting your tenants have renters insurance by move-in day or shortly after, such as within a week or two.

If you mandate renters insurance in the lease, failure to obtain a policy can be considered a lease violation, and therefore grounds for termination.

A Recommended Lease Clause

Whether or not you require your tenants to have renters insurance, you certainly want to let your tenants know that your landlord’s insurance policy won’t cover their belongings (unless they were damaged or stolen as a result of your negligence).

Many renters don’t know this and are under the mistaken assumption that your policy covers their stuff. Maybe that’s why only 31 percent of renters have renters insurance.

Note: Please have a local attorney review the clause above for your own usage. Each state has its own rules regarding insurance. Please know that we are not lawyers, nor do we provide legal advice.

Help Your Tenants Help Themselves

Many tenants don’t know that renters insurance even exists, nor where to buy it. If you require or suggest that they purchase a policy, help them fulfill it.

When my tenants ask, I suggest one or all of the following:

  • Check with your auto insurance company – they can likely bundle it for you.
  • Use any other major insurance carrier.
  • Use a recommended and trusted insurance agent whom you already have business with.

The largest and leading renter’s insurance companies are:

Do you require your tenants to carry renters insurance? Let us know in the comments below.

This article was co-written by Lucas Hall and Laura Agadoni (view all Laura’s articles)

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