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Do Your Tenants Need Renter's Insurance?

Why Tenants Don't Purchase It and Why They Should

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As a property investor, you probably realize the importance of having the proper insurance so that you and your property are protected, but do you also realize that your tenants should have insurance as well? Tenants must purchase a renter’s insurance policy to protect their possessions and their liability. Many renters never realize the necessity of insurance until it is too late. Many also mistakenly believe they are covered under your insurance policy, which is not the case.

Why Tenants Don’t Purchase Renter’s Insurance

There are many reasons a tenant may not purchase renter’s insurance.

  • They Don’t Know It Exists- Many tenants don’t purchase renter’s insurance because they simply do not know it exists. They may have health insurance and car insurance, but they think insurance relating to the home is exclusively for home owners, not renters.

  • It Is Not a Priority- Other tenants may know that renter’s insurance exists, but they put off purchasing it. They focus on things they consider more important, such as health insurance, and put purchasing renter’s insurance on their to-do list. It is such a low priority that they can easily sign a lease and, before they know it, the lease is over and they have never gotten around to purchasing that low priority renter’s insurance.

  • They Think They Are Covered By Your Policy- Other tenants fail to purchase renter’s insurance because they believe they are covered under the building’s insurance policy. This is not the case. If the tenant does not have insurance and there is a fire at the property, for example, the insurance for the building will not cover the tenant’s possessions.

  • They Think It Is Too Expensive- Some renters do not purchase insurance because of the cost. They believe it is too expensive and would rather risk living in the property without it.

  • They Think It’s a Waste of Money- Another reason for not purchasing renter’s insurance is, the tenant simply thinks it is a waste of money. They follow the “what are the chances” mentality with renter’s insurance. They think that there is a slim chance there will be a fire, theft or other incident at their property. They would rather take the risk of something bad happening without being properly insured than paying the money so that they are covered.

Why Tenants Should Purchase Renter’s Insurance

Tenants should purchase renter’s insurance to protect their possessions and to cover them if liability issues arise. It is important to note that every renter’s insurance policy is different. The tenant must read their policy thoroughly to determine the amount of coverage and what acts and events are covered under their specific policy.

  • Affordable- Many tenants are wary of purchasing renter’s insurance because of the cost. In actuality it can be very affordable. Most renter’s insurance policies run between $100 and $200 a year. The cost will vary depending on factors such as amount of coverage and the location of the property.

  • Liability Coverage- Having the proper renter’s insurance policy can help protect a tenant if an accident occurs in their unit. For example, if a guest comes over and slips and falls in the property, most renter’s insurance policies offer liability protection that would cover the tenant for this incident. The amount of protection will depend on the terms of the individual policy.

  • Fire or Wind Coverage- A renter’s insurance policy can offer a tenant protection if their possessions are lost or damaged by a fire or from wind damage, such as a tree falling on the property. Depending on the policy the tenant chooses, they can either receive an actual cash value for their possessions or the replacement cost. Replacement cost policies are usually slightly more expensive.

  • Theft Coverage- By choosing a renter’s policy the tenant can also be covered if there is a theft or burglary at their property. Again, the amount and type of coverage will depend on their individual policy.

  • An Additional Layer of Protection for You- When a tenant has renter’s insurance, it is an additional layer of protection for you, the landlord. If there is an accident in their unit or their negligence causes damage to the property, their renter’s insurance policy will be targeted first. This can prevent you from having to file a claim with your insurance company.

  • Does Not Cover Everything- Of course, a renter’s insurance policy does not cover everything. The tenant will want to purchase separate insurance for expensive items, such as an engagement ring, because the full value will never be covered by a renter’s insurance policy. In addition, the renter’s insurance likely does not cover damage from flooding. If flooding is a concern, a separate flood insurance policy must be purchased.

How to Tell Tenants About Renter’s Insurance

You should include a renter’s insurance addendum as part of your lease agreement. Consult an attorney to determine the exact wording, but you should make it clear that the tenant and the tenant’s possessions are not covered under your insurance policies. You should spell out the benefits of having renter’s insurance.

Some states allow you to require tenants to purchase renter’s insurance as long as this requirement is in place for all tenants. Check your local landlord tenant laws to determine the rules in your area. If your state does not allow you to require renter’s insurance, you could try offering the tenant a reduction in rent if they purchase and maintain a renter’s insurance policy throughout their tenancy.

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