Why You Should Require Tenants To Carry Insurance
You don't know what you don't know.
This old adage is particularly true if you are trying your hand at rental property. Most new landlords figure that if they've owned the house or condo, they pretty much know how to manage it for a tenant. But renters present a new set of issues, and owners learn the hard way exactly what they don't know.
Your Tenants Need Renter's Insurance
Renter's insurance is a good case in point. If you already have a homeowner's policy, why should you ask the tenant to incur the extra expense of a renter's policy since the house is already covered? Inexperienced landlords mistakenly think that a property can't be insured twice, or that renter's insurance is only for apartment tenants. Neither is true--while you can't double insure the building, a. tenant can--and should--insure their possessions and limit your liability.
The terms "renter'" and "tenant" policy are interchangeable--they both refer to an insurance policy for someone who pays rent where they live. If you're new at the rental business, it would be fair to think that it's up to the tenant whether they want to insure their stuff or not. If you never thought to get it for yourself and never had any issues, that's a reasonable assumption.
What Does a Renter's Policy Cover?
Yes, a tenant policy covers clothes, electronics, furniture, and whatever other stuff your tenant brings to the property. That's a big deal for them, and they don't care so much about the building itself--also fair.
You, on the other hand, are quite invested in the house or condo, and in the liability associated with being the owner. If your tenants don't carry a policy, you are responsible for any damages to the property, as well as any injuries that a guest or worker sustains while they are there.
Here are some of the things a standard tenant policy covers. Individual policies differ in terms of how they pay for lost, stolen, or damaged items, but these are general coverages.
Any policy will cover against theft, and most cover personal property damaged by fire, smoke, lightning, or other weather events. So if there's a bad storm and a tree branch in the yard falls on the tenant's car, the car is covered. This not only protects your tenant, but saves you the headache of having them come after you to cover the damages--and you would probably have to pay up.
Tenant policies also pay for water or smoke damage that may be incurred from sources inside the house--this includes appliances, plumbing, heating and AC, or a fire-protection sprinkler. If the repairs are so extensive that the house is uninhabitable, the policy also will pay for alternate housing during the repairs.
Special circumstances--flood and earthquake--can be insured against too, but the tenant will need a separate policy or rider for this coverage. Use your judgment about requiring these for tenants, but if you carry special riders, they should, too.
How Much Tenant Insurance Should You Require?
A standard policy covers four things--personal property, personal liability, medical payments, and loss of use. An insurance agent can tailor coverage amounts to reflect the tenant's needs and your requirements.
Personal Property covers exactly that. Ask your tenant how much it would cost to replace everything they own, from cars to golf balls, and double that number. Most people tend to think about the big-ticket things like computers and TVs, and forget how socks and lamps and new towels add up.
Personal liability covers any potential legal action that comes from accidents on your property. If that pizza delivery person falls on slippery pavement and breaks a leg, then they can sue for damages. $100,000 is the minimum liability that the tenant should carry.
Medical Payments are also yours to pay for that very expensive pizza. With health care costs--especially emergency-- costs being what they are, be aggressive with this coverage--at least $20,000.
Loss of Use costs will pay for a hotel or similar rental property during repairs, but gas, food, and other living expenses are also covered. Tenants need tp keep detailed records of expenses, but most insurers will issue some funds immediately to cover these costs. Look at hotel costs and general cost of living in the neighborhood so you can base your coverage on local standards.
As with any insurance policy, the premiums will go up if claims are made. The good news is that tenant insurance premiums are quite low compared to a homeowners policy, so coverage is affordable.
More Reasons For A Landlord To Require A Tenant Policy
One thing you've likely noticed is that a tenant policy duplicates your homeowner's coverage, less the dwelling itself. If your tenant does not have their own policy, then any claimant is coming after your homeowner's insurance if there is any damage or injury. This is going to cost you a couple of ways--your premiums on that property are going up, and chances are any other policies you have on other homes will increase, too. If the claims are substantial or you have more than one (like over the span of several years), your carrier may drop you for "excessive" claims.
Just like good fences make good neighbors, good insurance coverages makes a good landlord/tenant relationship.
Benefits Of Professional Property Management
Requiring a sufficient renter's policy for tenants is just one of the things that new landlords may not think about, but a professional management company has proof of renters insurance at the top of their list for new tenants. Century21 has experienced staff who know what they know about property management and they know a lot. From advertising to tenant screening and application, to collecting rents and managing repairs, a professional team takes all the headache out of being a landlord. As you grow your business and learn the ropes of management, you'll find that your management team remain a valuable asset for your business.
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