Have you ever wondered why landlords require renters insurance? Don’t they have their own insurance? Why should a landlord care what happens to a tenant’s personal belongings? Isn’t it up to the tenant to decide whether that 60″ flat screen TV and a closet full of designer jeans is worth insuring? What’s going on here?
Well, like most things, there’s more to the story than it might seem at first glance. The reasons landlords require renters insurance actually seem quite sensible once you understand how the pieces all fit together.
Landlord Insurance Doesn’t Cover It
First of all, let’s be clear that a typical landlord insurance policy only covers the building, permanent fixtures like cabinetry, plumbing, etc. and any incidental personal property (owned by the landlord) on the premises. Furniture, appliances, jewelry, or any other personal possessions owned by the tenant are explicitly not included. That means that if there’s a destructive fire or theft, any resulting loss to the tenant is not covered by the landlord’s insurance policy.
So what? Shouldn’t the tenant be able to take this risk? Why does the landlord care? Well, the answer is that, statistically speaking, a high proportion of tenants that find themselves in this predicament decide to go after the landlord. Maybe a lock on a window was broken or some other aspect of the property might have played a role in the event that resulted in the tenant’s loss.
By requiring the tenant to insure themselves against scenarios like this, the landlord eliminates a potentially adversarial situation. With renters insurance, the tenant simply files a claim with their insurer. In the absolute worst case scenario, the two insurance companies (landlord and renters) go after each other to determine responsibility. Either way, that’s far preferable to landlords and tenants duking it out directly in court.
The bottom line is that renters insurance strengthens the landlord-tenant relationship by eliminating many of the possible situations that often lead to suspicion and mistrust. It’s just way less likely you’ll ever litigate against each other if both parties are insured.
Renters Insurance is NOT Expensive
Another reason why landlords require renters insurance is that it’s become exceedingly affordable. In most cases, renters insurance costs only $15 to $30 a month, perhaps a bit more if you include coverage for damage or injuries caused by a pet. You can often tack it on to an existing auto insurance policy and get a multi-policy discount.
Lemonade now offers renters insurance in thousands of US markets, as do traditional carriers like State Farm, Allstate, and American Family Insurance.
Given the low cost of renters insurance, requiring it also helps landlords screen out tenants who are only marginally able to afford the rent. If an extra $20 or $30 a month is a stretch for a potential tenant, that’s often a warning sign that their ability to pay the rent on time and in full every month could be in jeopardy.
If you’re a tenant looking to land a particular rental property, it’s wise to give the landlord every confidence in you by stepping up and happily agreeing to carry renters insurance.
Moving Out in a Hurry is Expensive
A key element of nearly all renters insurance policies is additional living expense coverage, also known as ALE. This is the part of the policy that pays the tenant’s rent or lodging expenses in the event they have to move out if the premises become uninhabitable. This doesn’t happen often, but when it does, it can be quite expensive.
Depending on the circumstances that resulted in the premises becoming unfit for occupancy, the landlord can sometimes find themselves responsible for relocating the tenant and covering their replacement housing costs. This situation is avoided when the tenant has renters insurance that includes coverage for additional living expenses. The insurance carrier steps in and works out the financial arrangements directly with the tenant. This approach is preferable to all parties in that it serves to preserve the working relationship between landlord and tenant, and can ultimately save the landlord a lot of money.
Landlords Don’t Like Paying Deductibles
Just because a landlord carries insurance to cover the building, loss of rents, etc., that doesn’t mean they’re immune from writing checks to cover losses. Indeed, many landlords choose not to file claims for minor incidents, even when they’re clearly covered under the policy. Claims tend to drive up premiums in future years, and a pattern of claims over many years can lead to denial of insurance. There’s also the important matter of deductibles to consider.
Most landlord policies carry deductibles, which can range from $1,000 up to 1% (or more) of the coverage limit. Landlords that require their tenants to carry renters insurance reduce the likelihood they’ll have to pay the deductible under their own policy. If a tenant action or behavior results in a loss that’s ultimately pursued via a claim on the landlord policy, the required renters insurance will typically cover the deductible.
In this way, landlords can eliminate their out-of-pocket risk when it comes to losses and claims related to incidents where the tenant is at fault.
Pets Are Cute, Sometimes
Cats and dogs are usually reliable companions but sometimes they get confused and mistake the plumber for a burglar. Dog bites can lead to very expensive reconstructive surgery in some situations. If a tenant with a pet doesn’t have renters insurance, it’s more than likely that the plumber (or her company) will go after the landlord for damages.
It’s also likely that the landlord was nowhere near the property when the incident occurred and had no way of preventing or avoiding the injury. In this scenario, a properly specified renters insurance policy that includes coverage for pet-related incidents becomes the landlord’s best friend. The tenant’s insurance carrier ends up bearing the brunt of any settlement or court costs associated with the incident.
“Check’s in the Mail!”
The added expense and stress that tenants experience when recovering from a significant loss of personal property due to fire or theft can often put their ability to make rent payments in jeopardy. Landlords clearly benefit when a tenant is better insulated from these types of financial shocks. When renters insurance is there to step in and mitigate the tenant’s losses, the odds that the rent arrives on time as usual, are greatly increased.
Trust, but Verify
It’s one thing to agree to a renters insurance requirement in the lease, and quite another to bind coverage and write the check every month. It’s absolutely a best practice for landlords to insist on being named as an “interested party” (not to be confused with “additional insured”) on the renters insurance policy. This is the most reliable way to make sure the required policy is paid up and in effect at all times.