5 Reasons You Should Require Renters Insurance in the Lease


As a landlord or property manager, you can and should require a tenant to buy and maintain renters insurance in the lease. Although renters insurance isn’t necessarily required (depending upon your state laws), it’s a good idea to make it a requirement to rent your property. If you’re weighing this decision, be aware that adding a renters insurance requirement in the lease will benefit you as much as it will the tenant. Renters’ insurance is relatively inexpensive for tenants — often less than $20 per month. Many renters assume that a landlord’s insurance policy covers their personal property, which it does not.

What Are the Benefits of Requiring Renters Insurance?

Landlords should require renters insurance in the lease because by doing so, you are protecting both you and your tenant(s). An extra layer of protection never hurts when it comes to owning and renting property. But because laws vary by state, be sure to speak with an attorney about adding a mandatory renters insurance policy to your lease. How much coverage you require from a renters insurance policy is up to you, but be sure to discuss this with your attorney as well. The benefits of renters insurance are as follows:

1. It mitigates the threat of a lawsuit

Renters insurance is extremely helpful when it comes to keeping you out of court. If the tenant doesn’t have rental insurance, and there’s an instance where damage occurs involving the renter’s belongings, there’s a chance that the tenant will try to claim that the landlord is responsible for said damage. Consider this scenario:

A tenant has friends over, and a guest is injured. The tenant does not have renters insurance, and the injured guest (or the hospital) files a claim against the landlord. Even if the landlord’s insurance company agrees to pay, higher premiums are sure to follow. If the tenant did however have renters insurance, it would take the landlord out of the scenario.

2. It reduces your responsibility

If there is a fire or other type of damage-causing incident in your rental, the tenant may feel that you are responsible for finding them a temporary place to stay. In some states, you are in fact responsible for this and must provide relocation benefits. However, tenants with renters insurance will not need this from you. Their renter’s insurance will handle this, and you will be free to deal with repairing your rental.

3. It will help you find responsible tenants

If an applicant claims that he/she can’t afford renters insurance, then there is a good chance that their income will not meet your requirements. If a potential tenant cannot pay for the monthly rate for renters insurance, you are risking renting to a tenant who cannot pay rent in full or on time. Many renters, whether they are required or not, purchase and maintain renters insurance for their own benefit. So if you come upon the situation where a tenant cannot afford that additional cost or does not care to purchase a renters insurance policy, it may be in your best interest to continue looking for another applicant.

4. It covers your deductible

If a tenant damages the property, such as inadvertently causing a fire, your insurance policy may pay the repair costs. However, you will be left paying the deductible, which can be a substantial amount of money. If the tenant has renters insurance, the policy will likely cover your homeowner’s insurance deductible, easing the financial burden of this situation on your end.

5. It will give you peace of mind

Knowing that your tenants have renters insurance is one less thing you have to worry about as a landlord. You won’t have to face lawsuits and pay accompanying legal fees for issues that are not your responsibility. Both you and your tenant(s) will benefit from purchasing and maintaining a renters insurance policy, and it will keep either of you from having to deal with uncomfortable financial and legal scenarios in the future.

Hold Annual Checks for Renters Insurance Policies

In the lease, it will state that the tenant must show proof of rental insurance before moving in. However, it’s possible that a tenant can let the policy lapse, in which case it would no longer be active. To avoid this scenario, have the tenant show proof of renters insurance annually — typically as a requirement for renewal. If renters insurance is a mandated part of the lease, the tenant’s canceling of the policy or allowing it to lapse is grounds for termination. Be sure to inform your tenant of the importance of renters insurance before he/she signs the lease.


Source: 5 Reasons You Should Require Renters Insurance in the Lease