Should Landlords Require Tenants To Have Renters Insurance?
Should Landlords Require Tenants To Have Renters Insurance?
Renters Insurance Benefits
Renters insurance can be of benefit to landlords. Accordingly, landlords should encourage tenants to have renters insurance and, if allowed by their state’s law, should consider making renters insurance mandatory for all their units.
One estimate is that less than a quarter of renters have renters insurance. Many mistakenly think that the landlord’s insurance will protect them regarding various risks.
They do not realize that they must purchase their own insurance to cover damage to their personal property resulting from risks such as fire, vandalism, and theft. Tenants must clearly understand that a landlord’s insurance does not
extend to the tenant’s personal property. Neither does the landlord’s policy cover the tenant’s liability for damages to property of others or to injuries or death occurring on their leased premises.
Many also do not understand that they may be held responsible for injury to another person or damage to another person’s property, whether the incident occurred within their rented premises or, under some circumstances, elsewhere.
Without liability coverage, their assets and their current and future earnings could be at risk.
Accordingly, landlords and property managers should (1) explicitly inform new and existing tenants who have not been previously informed that the owner’s insurance does not (a) cover their own personal property, (b) cover damages to the landlord’s property resulting from their actions or inactions, or (c) protect them against judgments from lawsuits related to their occupancy of the property and (2) make every effort to be sure that tenants realize the importance of purchasing their own renters insurance. Landlords benefit when including this information within the lease agreement.
Many fires in rental units are caused by tenants while cooking, by use of faulty appliances or extension cords supplied by tenants, or by improper use of those items. Accordingly, tenants should also be made aware that the landlord will have the legal right to collect from the tenant for any damages to the landlord’s property caused by the tenant’s negligence and that the tenant may be held liable by the landlord’s insurer for any amounts related to such damages paid to the landlord by the landlord’s own insurer.
A tenant’s casualty coverage will reduce potential landlord-tenant disputes after tenant’s losses, including from fire, water damage, and theft. A tenant’s liability coverage may also provide additional liability protection for the landlord.
Many tenants have limited assets and are somewhat “judgment proof.” Accordingly, landlords should usually expect to be named in any lawsuit when someone is injured on a rental property, no matter that the landlord was in no way at fault. A tenant’s insurance policy that includes liability coverage may eliminate the need for the landlord’s insurance policies to pay claims.
It is the insured’s responsibility to immediately notify his/her insurance company or agent as soon as he/she learns about a claim or a probable claim. In fact, the policy will have a requirement to “immediately tender” any claim. Failure
to do so in a timely manner may jeopardize the coverage. For most liability policies, you are required to notify the insurer immediately after an incident on your property that might cause a future claim no matter how unimportant the
incident may seem at the time it occurs.
Therefore, no matter how good the coverages provided by the tenant’s policy and whether or not the landlord is named in a claim related to a rental property, landlords should report any event that could lead to potential claims against the landlord even when it seems obvious the claim will ultimately be against the tenant’s policy. It will be up to the landlord’s insurance company and the tenant’s insurance company to determine which of them is liable for payment of claims.
In most states tenants can be required to carry renters insurance by the lease agreement. Many landlord insurers for commercial properties require that the landlord make specified insurance a lease requirement, with the landlord being responsible for making certain that such insurance remains in effect during the tenant’s tenancy. However, landlords should verify that their state does not prohibit or otherwise regulate such a requirement for residential rental properties. When requiring the tenant to carry insurance, the lease should also require that the policy include the rental property as an additional insured and a vested party for reimbursement in the case of any damages.
If an event insured against (e.g., a fire) makes the rental home uninhabitable, the tenant’s insurer may also cover the increased costs of a place to live until the tenant can move back in.
As with homeowner policies, renters insurance is usually a package of several types of coverage designed to cover more than one risk.
A typical renters insurance includes the following protections:
Damage to or loss of tenant’s personal property – Available coverage limits are usually $15,000 to $100,000. Replacement cost protection is usually available as an option to value at time of loss. Tenant policies usually offer deductibles from $250 to $2,500. Endorsements for property such as personal computer equipment, business property, jewelry, bicycles, and cameras are often available as an option.
Medical payments – This coverage covers medical expenses up to the limits in the policy for people who are on the premises of the rental property with the tenant’s permission and are accidentally injured and also extends to people accidentally
injured by the tenant’s activities. The limit is typically $1,000 per person but higher limits of $3,000 or $5,000 can often be purchased.
Liability exposure of tenant – This coverage protects the tenant against certain risks per accident for bodily injury or property damage. Available liability limits are typically $100,000, $300,000, or $500,000. If sued, the policy will cover
court judgments made against the insured and any legal expenses up to the limits of coverage.
Renter insurance also usually covers temporary living expenses if their rental unit becomes unlivable because of water or fire damage or any other covered peril.
A renters insurance policy is usually a “named perils” policy. If the tenants’ property is lost or damaged as a result of a covered peril, the insurance company will compensate them for their loss. Covered perils usually include the following:
- Fire or Lightning
- Windstorm or Hail
- Explosion
- Riot or Civil Commotion
- Damage by aircraft
- Damage by vehicle (not your own)
- Damage from smoke
- Vandalism or Malicious Mischief
- Theft
- Burglary
- Falling Objects
- Weight of Ice, Snow, or Sleet
- Sudden and Accidental Tearing Apart, Cracking, or Bulging
- Freezing
- Sudden and Accidental Damage from Artificially Generated Electrical Current
- Volcanic Eruption
- 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
Tenants need to know that renters insurance is relatively affordable. For just pocket change a day, a policy can provide significant basic protection. The renters policy is relatively inexpensive compared to a homeowner policy because both policy limits and risks will be much less than for a homeowner. Almost all tenants have insurance on their motor vehicles and tenants may be able to cover an auto and get basic renters coverage for only a few dollars per month more than for just auto coverage alone because most insurers offer multi-line discounts.
As with all issues regarding management, landlords must apply the insurance requirement to all tenants in order to avoid fair housing violation claims. To be safe, this would mean applying the requirement to leases executed, renewed, or extended after the decision is made to institute the requirement. For month-to-month tenancies this would mean as soon as allowed by state law.