Requiring Renter’s Insurance From Tenant

Written on Tuesday February 26, 2019 by Bob Hinrichs

One of the best ways you can spend your time as a property manager is creating systems to reduce your liability when it comes to your tenants and their personal property. While there are a few ways to do so, requiring a tenant to carry their own renter’s insurance policy is a huge one! If you’re not sure how to enforce this type of policy or why it’s helpful for you as a landlord, keep reading.

Why is requiring my tenants to get renter’s insurance worth my time?

The obvious benefit of your tenant(s) obtaining renter’s insurance is that it will protect their property in the event of a tragedy or robbery. On top of that, if their policy calls for liability coverage as well, it will cover not only them, but also their guests in the event of an injury (assuming they don’t have health insurance). All of this protection can actually be purchased at fairly low costs of $100-200 each year, so it’s not much of a financial burden to ask of your tenants.

It Helps You Sort the Good Tenants from the Bad

Now, if you’re making the assumption that these policies only protect your tenant, you couldn’t be more wrong. One could argue their renter’s insurance policy actually has the potential to protect you more. Before a tenant even moves in, requiring renter’s insurance can help you separate good prospects from bad. Bad applicants will complain about the cost of renter’s insurance and claim they can’t afford it. As annoying as this sounds, it’s a great red flag for you to deny their application. If someone can’t afford an extra $15 a month, they’re going to struggle to cover rent.

It Protects You Financially

Once you determine who is a good tenant and allow them to move in, what happens if there is a fire or a break-in? Your property insurance does not protect your tenant’s personal belongings, so if they didn’t cause the loss, who do you think they’re going to come after for replacement costs? That’s right – you! However, in that same scenario, if they have an active policy, their items will be covered!

Many renter’s insurance policies cover bodily injury as well, which we mentioned above. If a tenant causes a fire that burns another tenant and destroys their personal belongings, their insurance companies can hash out responsibility and provide the necessary coverage rather than you having to mediate the situation on your own.

Not to mention, property loss can be emotionally and financially devastating without insurance. If your tenant is robbed and has to replace their possessions, it may make it tougher for them to cover their rent, which puts you in a bad spot as well. With insurance to cover the cost of replacements, you protect yourself from missed rent payments due to hardship.

There are hundreds of additional situations where having active renter’s insurance policies for every tenant could save you headaches, money, and liability, but the above reasons should be enough to persuade you at this point.

How do I make my tenant obtain a renter’s insurance policy?

Put it in the Lease Terms

If you know you want to require your tenants to get renter’s insurance, your next step is to enforce it. The easiest way is to make it a condition of the lease they sign before even moving in. If you’re kicking yourself in the pants because you have tenants in active leases without that requirement, don’t worry. As much as you can’t just add that term now, you can upon lease renewal. In the time being, explain the benefits to your tenants. Then, tell them the lease policies will be changing if they renew. It may encourage them to obtain a policy sooner.

In your lease, specify the amount of coverage you require as well as when you need proof of insurance from their policy provider. If you really want to protect yourself, require the tenant’s policy to list you as an additionally insured. Once you receive proof of their insurance policies, keep them on file. Then, make a document tracking each tenant’s insurance expiration.

Follow Up

Follow up is the key difference between landlords that enforce renter’s insurance rules well and those who don’t. If you don’t keep track of when policies expire, you risk lapses in coverage that could be devastating. As an expiration date approaches, send your tenant a friendly reminder that you’ll need proof of an updated policy before the current one expires. Doing so will offer the best protection for everyone.

Final Thoughts

It’s worth mentioning that as beneficial as these policies can be, there are exceptions. If you (as the landlord) fail to provide functional locks on doors (that results in a break-in) or cause a fire by neglecting building code/ordinances, be prepared for the possibility of insurance companies coming after you for compensation on behalf of your tenants. Renter’s insurance does not make you invincible; it simply protects you (and your tenants) from the actions of others, which is still worth its weight in gold!

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