Why renter’s policies are important for landlords

Renter’s policies are a great value

For $100-$200 a year tenants can buy a renter’s insurance policy which will protect their personal property and provide them with personal liability coverage. Many tenants don’t realize that their property is not covered by their landlord’s policy. If a fire or any other peril were to damage a tenant’s personal property, without the proper renter’s policy in place, the tenant would be responsible to replace all their belongings. Another important coverage typically included in a renter’s policy is loss of use coverage which covers the additional living expenses incurred after a loss. For less than $20 a month a tenant can protect themselves from catastrophe.

So why is this coverage important to the landlord?

As a landlord your tenant’s problem seem to always become your problem. It is difficult dealing with the day-to-day issues of having tenants: making sure you are getting your rent on time, calls about leaky faucets or broken stoves, snow removal, cleanliness, it’s no wonder why many landlords hire property management companies to deal with these issues. If one of your rental properties were to experience a loss, who do you think your tenants are going to be looking to solve their problems? Where are they going to stay until their unit is fixed? Who is going to replace all their stuff? A simple clause in your lease agreement to require your tenants to carry renter’s insurance will solve many of their issues without causing the landlord any stress or financial hardship.

Another liability exposure to consider are the invited guests and visitors that come to your rental property. As a landlord do you really want to be responsible for the people that your really have no control over that visit your property? If a guest were to fall and injure themselves in your tenant’s rental unit a renter’s policy would be the first to respond. Absent an in-force renter’s policy the landlord’s liability will be the only coverage left to pay for your tenant’s guest’s injuries.

Chances are that if you experience a claim at one of your rental properties one of your tenant’s is going to be the cause. Unless you are negligent in maintaining your rental property, most claims just don’t just happen on their own. An unattended candle, a backed-up drain, or any other damage caused by the tenant will end-up being the landlord’s responsibility. If the tenant has a renter’s insurance policy the landlord can seek to recover for the damage caused by the tenant first before they need to go to their own Lessor’s Risk Only (LRO) policy.

Good tenants are hard to find

Finding a tenant that is neat, quiet, and pays their rent on time can be very difficult. Do you really want to jeopardize losing a good tenant if their unit is damaged and they are displaced? Even in the best-case scenarios, it will take months to get your properties habitable again after a significant loss. Will your good tenants stick around long enough for the unit to be repaired? If they don’t have the loss of use coverage provided by their renter’s policy to pay for their temporary living situation (like a hotel) they may be forced to look for a new place to live. Now the landlord also must worry about finding brand new tenants once everything is repaired.

Landlords often have good relationships with their tenants. They don’t want to see someone put out on the street, especially if it is through no fault of their own. There are stories of compassionate landlords that will put their tenants up while their units are being fixed, but where is that money coming from? Some landlords are smart enough to have loss of rents coverage in their policies to cover their rental income after a claim. Do you really want to be using those funds to pay for a tenant’s temporary housing instead of supplementing your own lost income?

The bottom line:

Every landlord should make it a requirement in their lease agreements that tenants obtain their own renter’s insurance policy. The landlord should also request that they get proof that these policies are renewed every year. These policies don’t just protect the renters, they also protect the landlord from losing a good tenant in the event of a loss. Renter’s policies also provide landlords with an option to recover the cost of property damage that is causes by their tenants as well as protection from the legal liability that is created by a tenant’s visitors and guests. Without a renter’s policy in place, the landlord may find themselves on the hook for these risks and be forced to file a claim with their own LRO policy.