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Requiring renters insurance for your tenants is not required by law, but some landlords make renters insurance mandatory as a part of their lease. If done correctly, requiring your tenant to have their own renters insurance policy is legal. Learn the benefits of requiring renters insurance as a landlord and what protections it provides -- to both you and your tenants.
Landlord insurance vs. renters insurance?
A landlord insurance policy, or rental property insurance, typically only provides coverage and protection to the structure and the owner or landlord -- the coverage is not extended to the tenant.
Renters insurance provides certain protections to tenants that would typically fall outside of what is covered in a landlord insurance policy. For example, a renters insurance policy can provide coverage of the tenant's personal belongings and provide additional liability protection in the event there is damage to the property by the fault of the tenant or a guest of the tenant.
While most renters insurance policies relate to residential housing, such as a single-family home or apartment complex, they are also used in commercial real estate. In this case, landlords have protection with commercial property insurance or commercial landlord insurance, and the tenant is expected to have small business insurance or a business owner's policy which provides certain protections relating to potential liability relating to running and operating a business.
Benefits of requiring renters insurance for tenants
1. Protection of the tenant's personal belongings
One of the biggest benefits to a tenant is having protection for their personal effects in the event they are damaged or stolen. Even if the damage to the property, such as an electrical fire or storm, would be covered in the landlord's property insurance policy, the tenant's personal effects would not be included. Having rental insurance provides the tenant with financial protection and peace of mind knowing they and their things are covered.
2. Personal liability coverage for the tenant
If damage is caused to the property and the tenant or a guest of the tenant is found at fault, rental property insurance will provide liability insurance repaying part or all of the replacement cost or repair cost for the damage done. If a cooking fire was started or a pet caused damage to the flooring, the tenant would not be responsible for taking care of the damage out of pocket.
Benefits of requiring renters insurance for landlords
1. Lowers landlord liability
Renters insurance provides some security by reducing the potential for litigation between the landlord and tenant. For example, if the tenant doesn't have renters insurance and their personal effects are lost, they may pursue legal charges for the cost or replacement of their belongings.
In another example, the tenant may attempt to take the landlord to court if they or one of their guests are injured on the property and do not have adequate health insurance to help cover related medical expenses. Renters insurance provides tenant coverage up to a specified amount, reducing the likelihood of litigation and reducing the landlord's overall liability.
2. Supplements relocation costs
If the property is damaged and is considered uninhabitable until the repair or replacement is completed, some states may require the landlord to find temporary housing for the tenant while the work is completed. Maybe a pipe burst and the flooring of the property needs to be replaced. If the tenant has renters insurance, this can help pay for some or all of the cost relating to relocation and temporary housing expenses for the tenant.
3. Provides financial protection for the landlord
If the tenant causes damage to the property, your property insurance policy may cover the cost for damages at no additional cost to you. However, you as the landlord are still responsible for paying the deductible. If the tenant has renters insurance, the cost for the deductible will likely be covered from that insurance policy, reducing your out-of-pocket expenses.
|Renters insurance benefits for tenants||Renters insurance benefits for landlords|
• Insurance and protection of personal belongings.
• Personal liability coverage (especially great if you have pets).
• Reduces landlord liability and risk.
• Provides supplemental relocation costs.
• Offers financial protection to the landlord.
Require renters insurance the right way
If you do decide to require your tenants to obtain renters insurance or business insurance, make sure it is written into the lease in a specific clause. The clause should state whether there are minimum policy requirements, such as protection up to $10,000, $25,000, or more and give instructions on who to name as the landlord or additional insured on the policy.
If this requirement is written into the lease, it is expected to be upheld for the term of the lease. If the tenant fails to obtain or provide rental insurance or has a lapse in insurance, the landlord can legally pursue eviction for failure to uphold the terms of the lease.
Most insurance policies are relatively low in cost, especially for a residential rental policy, costing anywhere from $10 to $25 per month. Small business policies can be more costly and will relate to the size, coverage, and income of the business. It is suggested tenants shop around and compare insurance quotes to ensure they are getting the best coverage at the most affordable rate.
So, should you require renters insurance?
Requiring renters insurance is typically a good idea, and it offers way more advantages than disadvantages for both the tenant and the landlord. If you own a rental property, consider adding a renters insurance policy clause to your lease. Make sure you explain the benefits and added protection it offers to the tenant when explaining that it is required.
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