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Should Montgomery County Landlords Require Renter’s Insurance in the Lease?

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These days, Montgomery County income property owners are no longer leaving the fate of their rental properties up to chance.

Instead, they’re taking control of the outcome of any potential disaster by requiring their tenants obtain renter’s insurance.

By doing so, they’re making their lives a whole lot easier.

Renter’s insurance can be a great idea for your rental property business, but you may still have some questions. This post covers those questions and more – but first, what exactly is renter’s insurance?

 

What is Renter’s Insurance?

Renter’s insurance is a policy that provides many of the benefits of homeowner’s insurance – minus the coverage for the actual structure itself. It protects tenants against the perils of fire, theft, and vandalism, and pays for expenses if the rental property becomes uninhabitable.

Because of its benefits in these situations, many Montgomery County landlords opt to include a requirement that their tenants be covered by renter’s insurance.

Most often, when a tenant looks through a well-crafted lease agreement, they’ll see a clause that states their belongings are not covered by the landlord’s insurance. Such a lease typically recommends all tenants obtain their own renter’s insurance policy.

That’s why it’s perfectly reasonable for you to go one step further and require your renters to purchase renter’s insurance. It might narrow the pool of applicants, but it will pay off when you aren’t faced with significant property damage costs.

 

Why Montgomery County Landlords Should Require Renter’s Insurance

Lawsuit Prevention

The number one benefit of requiring renter’s insurance is that it’ll keep you out of court.

If a tenant has no other means to replace belongings that were damaged or destroyed in an accident in your rental property, they may consider bringing a lawsuit against you.

For instance, if the cause of the damage was faulty wiring, a tenant who doesn’t have insurance might just blame you for it. It’s easy to claim the damage was the result of some negligence on your part.

But if the tenant has renter’s insurance, they won’t have to worry about the costs of damage to their property or feel the need to point fingers.

 

Better Property Conditions

Another major benefit of renter’s insurance is that you won’t be stuck with a disaster zone after your tenant moves out.

Renter’s insurance often covers the replacement of damaged/destroyed items and the removal of those items from a property.

For example, if you were renting out an entire house that flooded, you’d be stuck with a house full of ruined furniture and appliances. A tenant who didn’t have renter’s insurance might just leave the cleanup to you.

 

More Financially Reliable Tenants

If you require renter’s insurance and the applicant complains about it, it may be a clue that they aren’t as financially stable as they should be to rent a property.

Renter’s insurance is typically very cheap – almost always under $20 a month. If a prospective tenant can’t pay that much more than their rent, what are the odds that they might not be able to pay the rent itself?

There’s nothing wrong with a person living paycheck to paycheck, but as renters, they’re much more likely to cause you problems in the long run.

 

Peace of Mind

Imagine this scenario:

Your tenant walks in the door of their rental property to find their possessions destroyed after a tree fell on the roof during a storm. But, because they have renter’s insurance, they know that they’ll be able to replace their belongings.

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This scenario plays out without your tenant blaming you or seeking compensation for the damages from you. And because they already live in your property and have no grievance against you, they’ll see no reason to leave.

If your tenant did not have renter’s insurance, such a scenario might play out very differently – with you scrambling to perform damage control as your tenant walks out of your office, threatening to sue.

The truth is, it’s already hard enough handling Montgomery County property management issues on a daily basis. The added stress of a potential disaster only makes it worse.

But if you require all your tenants carry their own renter’s insurance policy, you can rest easy. You’ll have peace of mind knowing you can avoid lawsuits and the accompanying legal fees for issues that aren’t your responsibility.

You might even have far better relationships with your tenants.

Why?

Because regardless of who suffers property damage and losses, you’ll completely avoid any disputes over who has to cover it. You won’t have to see your tenants as prospective litigants from day one.

 

Types of Renter’s Insurance

If you consider including a renter’s insurance requirement, you should know about these two types of renter’s insurance:

  • Liability – This covers injuries suffered in an apartment unit from accidents like falls. It also covers a tenant if they’re sued and held liable by a landlord for damages caused by negligence.
  • Contents – This covers a renter’s personal property, which ranges from TVs to clothing. There are limits on jewelry, antiques, cash, and collector’s items, but renters can find special additional insurance to cover those items.

These primary forms of renter’s insurance are often packaged and sold together, so you won’t have to make any real distinction in your lease agreement. Simply require your tenants offer proof that they have a renter’s insurance policy for the duration of their stay in your rental property.

 

Average Costs

On average, renter’s insurance costs $12 a month, or $144 a year. The property coverage for this cost is $30,000 with $100,000 liability coverage, with a deductible of $250.

Some carriers, like Allstate, State Farm, and Travelers, offer discounts of 10 percent or more if tenants already have another line of insurance with their companies. And if they have protective risk-reduction systems like smoke alarms, vaults, double-bolt locks, and security alarms, they’re eligible for further discounts.

 

Controversy

Renter’s insurance would be automatically included as a requirement in all lease agreements if tenants were always in favor of it. But sometimes there’s controversy.

“It puts a burden on the tenant by forcing them to have an additional expense,” says Ted Gullicksen of the San Francisco Tenants Union. “It effectively increases the rent on the apartment. It should be up to the tenant whether he wants it or not.”

But if you feel the benefits vastly outweigh the controversy, don’t worry. The only time when a landlord cannot require renter’s insurance is in a rent-regulated apartment, where the rent rate is set by government agencies. Any other market-rate rental unit is fair game for renter’s insurance.

 

Should You Require Renter’s Insurance?

Renter’s insurance helps to increase profitability because it transfers risks away from the owner. Instead of worrying about costly claims being filed on your building policy (which would cause steep rate increases and a high deductible), renter’s insurance protects against this completely.

That’s why requiring renter’s insurance is absolutely in your best interest as a Montgomery County landlord. It helps you maximize profits, maintain relationships with your renters, and avoid troublesome legal liabilities.

And, because rates are so reasonable, there’s really no reason for residents not to carry it. The fact remains – it’s a wise business practice for any reputable Montgomery County residential property management company to insist that their tenants obtain renter’s insurance.