Nowadays, most tenants and landlords have heard of renters insurance, but how many understand why it is vital to the industry? Renters insurance is easy to get, cost-effective, and integral to protecting a tenant’s personal property as well as against certain types of liability. More and more, landlords realize the benefits to both sides and require tenants to obtain insurance before moving in. So, continue reading below to learn why renters’ insurance is essential and how it can benefit landlords and tenants.
What Is Renters Insurance?
Renters insurance provides tenants some of the protections of a homeowner’s policy without protecting the dwelling that they do not own. In general, a renters insurance policy covers damage or loss to the tenant’s belongings as well as protection against liability claims. While policy details will vary based on the provider, typically, policy protection breaks down as follows –
- Tenant Belongings – Renters insurance covers a tenant’s belongings such as clothing, household items, bedding, electronics (with some limitations), hobby equipment, small appliances, and furniture.
- Personal Liability – In general, when a qualifying accident occurs, these policies offer liability protection against bodily injury or property damage to someone else on the premises.
- Emergency Expenses – A renter’s policy can compensate tenants for emergency living expenses if the insured or covered occupants must temporarily relocate due to a covered disaster.
Depending on the policy provider chosen, coverage may be at replacement cost while others look at cash value. Cash value coverage considers depreciation and the age of the item, which can significantly reduce the payout received in the event of a claim. So, always read the policy carefully and decide which type of policy is best for your needs.
How Much Renters Insurance Does a Tenant Need?
Just how much insurance each tenant needs depends on two factors – what the landlord requires and how much stuff a tenant has. Renters need to take a comprehensive look at all of their possessions and create a detailed written inventory. Therefore, providing an idea of how much coverage to get and a valuable tool in the event of a claim. If you have receipts or an idea of the original price – even better!
While the property coverage need will vary from person to person, liability coverage starts at around $100,000. This is usually the minimum starting coverage to basic policies as well as the minimum most landlords require. However, liability requirements may be higher if the rental property is in a luxury compound or a larger single-family home.
What to Look for in a Renters Insurance Policy?
There are tons of options and companies ready and able to provide competitive renters insurance coverage for tenants. So, how do you know which is the right choice? Although many people shop for insurance based on price, renters’ policies are generally a relatively inexpensive purchase. Most of which cost between $8 and $15 per month in premium. However, price is not the only or even most important factor to consider. So, when shopping around for coverage, tenants should weigh the following –
- How much coverage do I need? – Choosing the best policy in part depends on how much coverage you need. So, it is essential to evaluate your belongings and select a policy option that amply covers your personal property.
- Is it cash value or replacement value coverage? – Cash value means the claims adjuster will depreciate tenant’s items based on age. This can affect a tenant’s ability to get the funds needed to replace lost belongings. While it may cost a bit more, finding a policy that adjusts claims based on replacement value is a better option.
- Does the company have good reviews? – Online reviews offer great insight into how a company treats its customers. Especially in the event of a claim, customer service and responsiveness are critical. So, check out the company’s online presence combined with potential recommendations from friends or family can be helpful.
- Can I combine coverage with other policies, such as auto insurance? – Bundling renters’ insurance with an existing auto policy is a great way to obtain discounts or loyalty benefits. So, always check with your insurance company first to see what options they may have before checking out other providers.
Pro Tip: Remember that average renters’ insurance policies may not cover water damage in certain circumstances. As a tenant, property damage or loss can come from various scenarios, including floods, sewer backup, leaks, or frozen pipes. So, tenants need to review and understand what their policy covers. In some cases, an additional rider may be available for more comprehensive coverage.
Why Landlords Should Require Renters Insurance
Requiring renters’ insurance for new and renewing tenants has become industry standard over the past several years. That said, some landlords still hesitate, believing that this may further narrow their field of potential renters. However, proper coverage offers peace of mind and benefits all parties involved. Let’s look at some of the most common reasons why requiring renters insurance is a good idea for landlords.
- Added Protection from Property Damage
- Aids Tenants with Relocation Costs in an Emergency
- Reduces Risk of a Lawsuit
- Lower Homeowners Insurance Premiums
- The Only Protection for Tenant Property
- Peace of Mind for All
Added Protection from Property Damage
A tenant causing damage to the property either unintentionally or otherwise is a real threat for landlords. While protecting owners from tenant damage is the purpose of the security deposit, what happens when costs go above and beyond? Landlords may feel they have no recourse beyond taking the tenant to court. However, if the damage was caused by tenant negligence, the renter’s insurance may cover a landlord’s losses. In addition, requiring renters’ insurance helps owners feel more comfortable with allowing pets in the home, knowing there is another layer of protection against damage and liability.
Aids Tenants with Relocation Costs in an Emergency
When disaster strikes and temporary relocation is necessary, who foots the bill? In most cases, a landlord is not responsible for hotel expenses when displacement is due to something outside their control. However, this is potentially a considerable expense for tenants, and that is where renters’ insurance can step in. By offering emergency funds for relocation assistance as part of the insurance policy, tenants can focus on keeping themselves and their families safe – without stressing over the bill.
Reduces Risk of a Lawsuit
Accidents happen, and when someone else suffers a loss by no fault of your own, what protection do you have as a landlord or tenant? For example, a fire breaks out, a neighbor’s unit is damaged, or a guest trips and falls on the premises incurring medical bills. Instances like this fall under liability coverage, and it is an integral part of any reputable renters insurance policy. Typically, liability coverage starts at $100,000, but higher amounts are available depending on particular needs. So, liability coverage through a tenant policy can help avoid costly lawsuits and disputes over who is responsible.
Lower Homeowners Insurance Premiums
It is no secret that an insurance claim will likely make the premium increase. In extreme cases, cancellation or non-renewal may be a reality for policyholders that file too many claims. That said, when a tenant has their own policy, this shares the financial burden of a loss and can help keep insurance premiums from jumping exponentially after a claim.
The Only Protection for Tenant Property
It is a common misconception that a landlord’s homeowner’s policy will cover a tenant’s belongings. However, this is not the case. In addition, the landlord’s coverage does not cover the funds needed to relocate a tenant in the event the rental is deemed uninhabitable due to a fire, flood, or other loss. So, tenants must protect themselves and their property.
Peace of Mind for All
When a loss occurs, the effects can be devastating. However, imagine how much more devastating it would be knowing that no help is on the way. This is why renters’ insurance is so important! Whether it is emergency funding to find alternative shelter or replace lost belongings – knowing you are covered in the unfortunate event of a loss is invaluable.
Protecting Your Valuable Investment
Another way to achieve peace of mind as a landlord is to hire a qualified property management team. Professional rental managers take on the day-to-day responsibilities, so owners do not have to. At Bay Property Management Group, we know that keeping up with maintenance, marketing, administrative tasks, and customer service is daunting. So our full-service team of industry experts includes experienced managers, support staff, in-house accounting, and maintenance technicians – all dedicated to providing top-notch customer service to tenants and owners. If you are interested in finding out how professional management can help take your investment to the next level, give us a call today.