When Should Landlords Require Renter’s Insurance?
The initial reaction of many landlords to the subject of renter’s insurance is, “my property is insured, so why should I care?”
On the surface this response seems obvious and leaves nothing further to discuss.
As experienced and professional property managers, we strongly disagree. There are many situations where you can, “win the battle, but lose the war” if you’re shortsighted. Let’s examine several potential situations where requiring renter’s insurance could actually save landlords money in the long run.
If you accept dogs at your rental properties you run the risk of that dog biting someone and you getting sued. Why you? Because this is America and the person with the money always gets sued! Theoretically, the dog could even bite an invited visitor inside the property and you could be sued. Even if you win the case, how much would you spend in legal fees defending yourself?
Wouldn’t it be cheaper to require tenants with dogs to obtain renter’s insurance with at least $100,000 liability coverage for dog bites and name you as additionally insured?
Tenants store personal items in basements all the time, assuming their belongings are perfectly safe. What happens if these items get ruined by sewer backups or other types of leaks? Who’s the tenant going to blame no matter what your lease states? Once these tenants find out you have no intentions of covering their loss, they obviously won’t be too happy with you. Besides dealing with a very strained relationship for the rest of the lease term, what percentage of tenants do you think will break the lease or take out their frustrations on your property? Many rental properties will never experience this disaster, so renters insurance may not be necessary.
On the other hand, if you have a property that you know is prone to sewer backups or water seepage, then it may be wise to require tenants to obtain their own insurance.
Many landlords believe they’re 100% protected by their property insurance. You might say they feel a bit invincible knowing they have insurance. Well that may be some false security.
Just like your car insurance premiums would probably increase after an accident, the same thing has a high probability of happening if you file a claim on a rental dwelling insurance policy.
What’s more, how many landlords have noticed insurance premiums on rental properties seem to be increasing faster than the premiums on owner-occupied properties? How many have had a policy cancelled instead of renewed? Both are likely to happen with too many claims. Even worse, if an insurance company makes the decision to cancel one of your policies, usually ALL of your policies with them are cancelled! To top it off, insurance companies have a claims database where they share info, so good luck finding a new insurance company that won’t hold your claim history against you and either decline coverage or charge significantly higher rates.
It could be much cheaper to lower your chances of all this by requiring more of your tenants to have their own renter’s insurance that might cover all or part of a claim BEFORE a claim is filed against your policy.
We’ve only touched on a few potential pitfalls where requiring renter’s insurance could protect a landlord. The best course of action is to consult with a knowledgeable insurance professional to understand the risks and repercussions, so you can make a fully informed decision.
We also welcome additional scenarios and input from our readers!