Landlord insurance offers protection from financial losses that may result from a number of liability issues associated with a rental property. While a good, comprehensive insurance coverage helps landlords manage many types of risks, renters insurance can also add another layer of protection.
Landlords are not legally required to purchase liability insurance for their rental property, but without it, the financial losses normally covered by insurance would instead be paid out of pocket. The cost of property damage, theft, and the loss of income that may result from unforeseen events can exceed hundreds of thousands of dollars; therefore, it’s wise to have financial protection if you own a rental property. What about protection from tenants?
Renters insurance, also known as tenants' insurance, is an insurance policy purchased by tenants on your property.
Benefits of Renters Insurance to Landlords
Like landlord insurance, renters insurance is not required by law, but you as a landlord can make it mandatory. Let’s take a look at the 5 benefits of requiring renters insurance.
1. Limits your liability
A tenant may try to hold you liable for damages if they have no other recourse to reduce their losses in the event, for example, their belongings are damaged or stolen. Renters insurance mitigates potential threats as well as helps you maintain your focus on your rental property business, not on a lawsuit.
Landlord insurance offers liability protection for the policyholder only; protection does not extend to the tenant or their personal property, so it is a good idea to require renters insurance.
2. Makes tenants responsible for their losses
Your tenants cannot make you pay for their damaged or lost belongings if they have renters insurance. Its coverage is designed to not only provide another layer of protection to landlords, but to protect tenants themselves. Other benefits to tenants worth mentioning are covered living expenses should your property become uninhabitable and liability protection if tenants face a lawsuit.
Renters insurance may cover additional costs a tenant has incurred, such as hotel and meal costs, if their home is damaged and uninhabitable.
3. Lowers your insurance premiums
When you require your tenants to purchase renters insurance, their policy can help cover the costs of personal property damage and personal liability. In other words, your insurance company will not have to pay and your premiums may be lower, saving you money.
4. Protects pet-friendly properties
Harm caused by a tenant’s pet, such as a dog bite, may be covered under renters insurance. So if you’re a landlord transitioning your property to allow pets, it would be wise to require your tenants to purchase renters insurance. However, many insurers exclude coverage for “dangerous” dog breeds. Check with your insurance company to find out what they will cover.
5. Attracts responsible tenants
Requiring renters insurance also helps you find the most qualified tenants. If a tenant cannot afford renters insurance—some cost as low as $10 a month—then you might want to move on because it could mean that they also cannot afford to pay your rent.
On a national average, renters insurance costs $17 a month.
If you do make renters insurance a condition of renting, then require it from all your tenants. Be sure to check for proof at the time of lease renewal because policies can lapse. As a courtesy to prospective tenants, include your insurance requirement in your listings. Address their concerns and let them know that everyone can enjoy peace of mind from having coverage that is inexpensive and easy to obtain.