Renters' Insurance 101

Life is full of unexpected events. Renters, property owners, and property managers know this all too well. However, what your renters may not know is that the property’s insurance does not cover a tenant’s personal belongings. If there is a natural disaster or other emergencies, the landlord or property manager’s insurance does not cover damage to the tenant’s personal property. Therefore, it’s vital that your tenants carry renters insurance.

How Property Insurance and Renters' Insurance Differ

Property Insurance

Property insurance is a policy held by the property owner. This policy is similar to a homeowner’s policy but applies only to the building’s structure, not the tenants’ personal possessions. Property insurance covers damage due to fire, damage, theft, hail, wind, and other natural or human-made disasters. Policies differ depending on your coverage levels and location. Typically, property or landlord insurance covers the physical structure of your building, as well as any other structures on the property, like fences, free-standing garages, or storage sheds.

Most property insurance policies do not cover floods or earthquakes. If your property is in an area prone to these disasters, you might consider additional protections. As a general rule, property insurance does not cover any personal items you keep on the property. However, some policies make exceptions for items like snow blowers, lawnmowers, or other maintenance items deemed necessary for property management. In addition, your property insurance should also include liability insurance. If a tenant or employee injures themselves on your property and files a lawsuit, your property insurance may cover the costs. Talk to your insurance representative or attorney to learn more about your specific coverage.

Lease or Renters' Insurance

Lease insurance – also called renters insurance – is the policy held by your tenants. This policy covers damage to the renters’ personal property in case of damage from fire, theft, water, or other disasters. However, just like property and homeowner’s insurance, most policies do not include coverage for flooding or earthquakes. Check with your insurance provider and discuss whether or not you need this additional coverage.

Renters insurance covers the personal property inside the home, apartment, or condo. However, renters are not responsible for the structure itself. Therefore, lease insurance is significantly more affordable than a homeowner’s or property owner’s policy because the tenant only pays to protect their belongings.

Why Tenants Need Renters Insurance

Generally, property owners are required by their lenders to carry insurance. However, only a landlord can require a tenant to have renters insurance. That is, lease insurance is not required by law.

Consider this scenario. You’re the owner or property manager of a multi-unit apartment complex. A fire breaks out in one of the units, destroying that unit and severely damaging the units surrounding it. After the firefighters put out the blaze, they leave for the night. Many of your tenants have been displaced and are staying elsewhere. During the night, thieves enter one of the damaged homes and steal valuable items. Who is responsible for paying for this theft? In the eyes of the insurance company, the property owner’s insurance will cover damage to the structure and all costs to rebuild. However, they will not replace the items stolen from your tenant, nor will they cover the costs for tenants to stay in a hotel.

If the renter has lease insurance, however, that insurance policy would cover the stolen items, as well as any costs associated with relocating. Any tenant without renters insurance may try to hold you liable for these damages. And while your insurance likely won’t cover the costs, you may end up in costly litigation as a result.

Requiring Renters Insurance for Tenants

As we mentioned above, tenants are not required by law to carry renters insurance. However, it is legal for landlords, property owners, or property managers to require proof of renters insurance as part of the lease. As a landlord, it is strongly recommended that you insist your tenants carry a renters policy. Not only will this protect your tenants’ belongings in case of a disaster, but it will also limit your liability and lower your property insurance costs. Talk to your insurance agent to determine which types of insurance – and how much coverage – you should require tenants to carry.

Our dedicated brokers are committed to keeping your property compliant with all federal, state, and local laws, including insurance policy compliance. Contact us today at https://www.designatedbrokers.com/ to find if how we can lower your property management compliance costs.

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