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What Landlords Need to Know About Renters Insurance (And Why They Should Require It)

by Editor | ezLandlordForms

Tenants have plenty on their mind when moving into a new home, from coming up with security deposit and first (and possibly last) month’s rent to switching over utilities to the actual chore of moving all their wordly belongings.  With no bank hovering over their heads requiring renters insurance, it’s no wonder many tenants forget about it entirely.  But renters insurance is easy and cheap – according to the National Association of Insurance Commissioners it cost around seventeen dollars a month, or less than two hundred dollars a year!

During the Great Recession and the collapse of the housing market, many homeowners who could not sell opted to lease out their homes instead.  The rental market boomed, but a full 65% of tenants neglected to buy renters insurance.

When disaster strikes, tenants and landlords alike are up the proverbial creek if they don’t each have insurance, but the landlord is also affected if the tenant does not have renters insurance.  Tenants strapped for money and forced to buy all new furniture are likely to default on their rent, which is the last thing the landlord needs while handling the aftermath of a disaster at the property.  Further, without insurance covering liability for accidents, injuries and break-ins, the landlord may find themselves the target of a lawsuit that would have otherwise been covered by the tenants’ renters insurance.

Renters insurance covers a wide range of personal property despite its tiny price tag, because the landlord’s policy covers the physical building.  Like homeowners’ insurance, renters insurance covers damages caused by fire, smoke or water damage even if it is an internal plumbing issue.  Vandalism and acts of nature or theft also falls into claimable categories.  Flood damage however is not covered, and must be purchased separately (for more information see the National Flood Insurance Program).

Most personal property and furniture can be itemized and replaced or matched monetarily in value, including electronics and rare collections (e.g. coins, stamps, records and other collections of rare, valuable possessions).  It also would include liability protection to cover injuries suffered by visitors, occupants and pets (legal fees are covered in addition to awarded damages).  Renters insurance can be altered or added on to cover living expenses that can occur in the event that a tenant must use temporary housing like hotel rooms, food receipts or other costs that would be paid out by the renter while waiting for the rental property to be repaired.

Renters insurance (and homeowners insurance, for that matter) pays out in two possible ways: actual cash value, and replacement cost value.  Under actual cash value coverage, the insurer will pay to replace items up to the dollar amount purchased in the insurance plan, with a reduced price due to depreciation.  For a higher premium, renters can opt for replacement cost coverage, which entitles the insured to the cost of replacing the covered property with new goods, which generally costs around 10% more.  There are additional options when purchasing replacement cost coverage that helps to cover high cost items and home based businesses may demand a higher tier protection plan.

Renters insurances is often ignored because it is not required by banks or other institutions – only the landlord is in a position to require that tenants purchase renters insurance.  And require it they should: renters insurance can prevent landlord lawsuits, prevent tenant defaults and generally provide stability to the tenancy.

Some states prohibit the landlord from requiring renters insurance however, so be sure to check your state’s laws first!

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