Kicking off a new year generally means a few things for all of us, like counting our blessings, reflecting on our past year, and taking stock, so to speak, in a number of ways. Reflection and the pending tax preparation season also bring to bear financial matters.
One way to protect your rental investments at no cost to you is to require your renters to have renters insurance. Renters insurance protects both parties and is smart business.
Let’s cover how it benefits all parties so that you can have a productive conversation with your renters about requiring it, and how it helps them.
Big Benefits to Landlords
- Liability Protection
Renter’s insurance reduces the risk of paying for property damage that the tenant is responsible for. Granted these incidents should be unlikely, but they generally are expensive and something the landlord shouldn’t have to pay for.
Should a major loss occur, having third party coverage keeps your relationship with your tenants healthy at this stressful time. Disputes over who has to cover costs are avoided by having insurance in place.
3. Profit and Risk Transference
Renter’s insurance can facilitate profitability by transferring risk away from the owner. It prevents costly claims from being filed on the owner’s building policy, which generally would cause steep rate increases and has a high deductible.
Renter’s insurance also minimizes the risk of being sued by a tenant. If damage occurs because of faulty wiring or flooding, a tenant without insurance is more likely to blame the landlord and threaten a lawsuit. If the damage is covered by insurance, the tenant has little reason to expect the landlord to pay.
Big Benefits to Renters
- Protection of assets
Renters’ insurance covers many risks for your renters that they might be wrongly assuming your insurance covers:
- Loss due to theft, including losses away from the property
- Negligent destruction of your property or the landlord’s property (for example, if your bathtub overflows and damages the floor of your bathroom and the ceiling of the apartment beneath you)
- Liability for injuries or losses to others (a guest slips and breaks his arm on your freshly washed kitchen floor), and
- Natural disasters or damage to your property caused by other people
2. Low Cost
While the cost of renters insurance generally depends on location and the value of possessions, it typically costs a few hundred dollars a year for a $50,000 policy. Broadly, on a monthly basis, renters insurance ranges from ~$20 – 40.
The Insurance Information Institute is a good resource to share with your renters.
Sample Rental Clause
Requiring renters insurance is legal, although be sure to check your local ordinances. Below is a generic sample clause that you can use or have your attorney review:
[Tenant] is required to obtain a renters insurance policy in an amount sufficient to cover Tenant’s possessions and personal property in the Premises.
In summary, renters insurance benefits both parties in a number of ways, and is very inexpensive. Have a productive conversation with your renters about this requirement and they are likely to appreciate your policy and approach.
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