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Should You Require Tenants to Have Renters Insurance?

Should You Require Tenants to Have Renters Insurance?

Landlords have many decisions to make as to how they run their investment property business and draw up their contracts with tenants. One is whether or not to require tenants to have renters insurance. While some issues have lengthy lists of pros and cons to weigh, this matter is relatively simple to come to a conclusion on.

Yes, you should always require tenants to have renters insurance. There are several benefits for both you and your tenants, and really no significant downsides.

It’s worth noting that very few renters take out a renters insurance policy unless they’re obligated to do so in the terms of the lease. That’s why you should take the official step of mandating it in your lease agreements, rather than simply suggesting it to your tenants.

Let prospective tenants know up front about this requirement so there are no surprises at the lease signing. It’s also helpful if you take a minute to explain the benefits from their perspective. Also, because many renters don’t realize it, explain to them that while you have all the insurance you should have as a landlord, it does not cover a tenant’s personal property.

Why You Should Require Tenants to Have Renters Insurance

  • It’s not a significant expense for tenants. You might think it makes you less competitive to add this extra cost onto leasing your property. However, the national average premium for a renters insurance policy is only around $130 per year, or $11 per month. No qualified, financially stable tenant should have a problem handling this.
  • Policies provide a good range of coverage. As with any type of insurance, the details and coverage limits vary depending on the terms of the policy. However, renters insurance generally covers damage to the tenant’s personal property, natural disaster damage to their property, loss due to theft, liability for injuries, and certain expenses if the rental property becomes temporarily uninhabitable.
  • It shields the tenant from certain liability. Liability coverage in a renters insurance policy protects tenants if a person claims to have been injured on or near the property. It can also protect them against liability for damage they cause to another person’s property (for example, if they leave a faucet running or don’t report a leak and cause damage in the unit below them).
  • It’s one more layer of tenant screening. While credit, employment, and background checks are the most essential forms of tenant screening, requiring tenants to have renters insurance is just one more check in their favor. Generally speaking, it offers a bit of reassurance that the tenant is responsible and financially stable if they’re willing to carry insurance.
  • The policy provides you with peace of mind, too. The tenant gets peace of mind knowing that certain types of damage are covered in their renters insurance policy, but so do you. An uninsured tenant without coverage who faces liability for damage they’ve caused may decide to abandon the property, which can leave you stuck with the expense.
  • It can protect you from extra expenses due to an uninhabitable property. Depending on the circumstances and state and local laws, landlords have different levels of financial responsibility when their occupied rental property or unit becomes uninhabitable and the tenant doesn’t have renters insurance. The relocation and temporary housing costs could be significant for you if your tenant doesn’t have a policy.
  • It protects you in the event of theft. As a landlord, you’re responsible for the security of the premises. A tenant whose property is stolen from your rental property can sue you. However, they’re much less likely to do so if they can file an insurance claim for their losses.
  • It can help keep your insurance premiums down. Insurance premiums usually go up after you file a claim. If you file one—especially a large one—for damage caused by a tenant, you can expect your costs to go up. However, if the tenant is covered by renters insurance, they’re more likely to accept all or some responsibility, letting you avoid or limit a claim on your end.

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