Renter’s Insurance: Should You Require It for Your Tenants?

Anyone who owns property knows there are risks and costs that come with it. And landlords face more risks than most, as they entrust their valuable property to the care of tenants.

Fortunately, insurance can usually protect you against a wide variety of risks and protect your investment. But in a standard building owner’s policy, there are some things that aren’t covered, such as damages caused by renters.

To guard against these potential damages and fill in any gaps not covered by a landlord’s insurance policy, it’s a good idea to require your tenants to get renter’s insurance.

Here’s a brief guide to landlord insurance, renter’s insurance, and the pros and cons of requiring your tenants to get this extra protection.

What Is Landlord Insurance?

Landlord insurance, including both residential and commercial building insurance, will cover your home or property against the risks that often come with a buy-to-let property. Basic policies will cover certain damages, fixtures, and fittings. Additional policies can cover lawsuits and injuries. You can add more coverage to a basic policy, including safeguards for loss of rent and accidental damage, to ensure that your property has the protections that it needs.

When you start shopping around for this type of insurance policy, you must become familiar with and prioritize what risks you want covered in order to find a policy that will account for the nuances of your property.

Where Does Renter’s Insurance Fill the Gaps?

While a landlord’s insurance policy protects property against many damages, it will not offer coverage for tenants’ belongings or damages caused by tenants. That means that, in the case of an accident caused by a renter, your insurance policy would not pay to help cover the damages. The tenant would be responsible for the cost of damages, but if they were unable to pay, you would be left with no compensation for expensive repairs.

Renter’s insurance covers your tenants’ belongings and preventable damage that is caused as a result of the negligence of your residents. It can even account for occurrences that are out of your occupants’ control like theft or vandalism. Renter’s insurance can protect both the renter and the landlord from the cost of unforeseen damage as well as legal liability.

Renter’s insurance may also cover perils, common damaging events that are outlined in the insurance policy. A peril can include fire, lightning and wind damage, smoke damage, and damage to vehicles.

Renter’s insurance isn’t required in the same way that home insurance is. But, as a landlord, you can make renter’s insurance a requirement in tenant contracts. Requiring tenants to get renter’s insurance protects both you and them against potential disasters.

The Pros & Cons of Renter’s Insurance

There are, of course, several benefits to requiring renter’s insurance, but there may also be downsides. Some pros and cons are listed below:

Pros

  • Tenant protection for belongings. Tenants get the benefit of coverage for their belongings in the event of theft or other covered disasters, something they are not afforded under the landlord’s insurance.
  • Tenant and landlord protection for property. If a fire or flood occurs due to a tenant’s negligence, renter’s insurance can cover damages as a result. It protects your tenants from being responsible for extensive repair costs and also ensures that cost does not fall to you if your tenant cannot pay.

Cons

  • Increased costs. Tenants will have to pay for renter’s insurance in addition to their monthly rent. They may be slightly more reluctant to sign a contract that requires them to pay additional fees; however, renter’s insurance is very inexpensive, usually costing only around $15 to $20 per month.
  • Deductible. Most insurance plans have deductibles up to a certain amount that dictates how much damage you are responsible for. Until you reach that deductible, you are financially responsible for any damages or repairs. This deductible is often between $500 and $2,000 for renter’s insurance, but some policies have a zero-dollar deductible.

The pros of renter’s insurance vastly outweigh the cons, both for you as a landlord and for your tenants. The idea of an additional cost may make some prospective renters wary at first, but when the low cost and significant benefits are explained, most will likely recognize the value of renter’s insurance and not object to it being a stipulation of their housing contract.