“Should I require my Tenants to get Renters Insurance?”

YES! ABSOLUTELY!    I don’t know how I could stress this reply even more.  

There is no downside by having your Tenants have Renters Insurance for either party – ok, there may be 1, but that is due to the cost of Renters Insurance for the Tenant; which is a whopping $15ish a month with most Carriers with the coverages that I have listed below which I recommend all my Clients require of their Tenants.

As I was saying, there is no downside for either you or your Tenant.

• Your Tenant will have Loss of Use Coverage in case they are displaced due to a covered Loss. They won’t need to go to you expecting you to pay for their hotel room while the place is being renovated. Something as simple as a washing machine overflowing could take upwards of 2-3 weeks to mitigate and repair. Hotel stays can add up fairly quickly especially if you’re renting to a small family and if there are any pets involved.

• Your Tenants will have Personal Property Coverage. Remember the scenario above with the overflowed washer? What if the water damaged their furniture or other Personal Property? Most mitigation companies can dry out and restore these items as that lovely musty smell that gets on your clothes when you leave them in the wash for a day can also end up on getting all over your stuff when warm water and laundry soap overflows onto carpet or sofas. And sometimes water damage can cause furniture to warp (think dining tables and chairs) deeming the furniture irreparable and therefore must be replaced.

Another scenario I use is let’s say the home gets burglarized and your Tenants personal belongings are stolen, your Tenants would have coverage and you won’t be expected to provide any compensation.

• Your Tenants will have Personal Liability Coverage. Let’s say your Tenants have a party and there’s alcohol involved. And let’s say someone at the party leaves in a vehicle and drives off impaired and they cause an accident. The question of ‘where were you coming from?’ will be asked and your Tenant will be brought into the investigation.  With your Tenant having their own Personal Liability Insurance, it further protects you, the property owner, as the party took place on your property and your Tenants Personal Liability Coverage acts as a barrier further protecting you and your property. 

1 piece of added advice from me, to you the Property Owner: require that you/your entity is listed as an Additional Interested/Insured on your Tenants Renters Policy (depending on the Carrier, if ‘Additional Insured’ is the option on their screen, there is an additional endorsement written in the policy which gives the same coverages as ‘Additional Interest’ ). There is no cost to have you listed as thus on their policy and will ensure that your Tenant keeps the policy in force for the length of their Lease (yes, some Tenants have been known to cancel their Renters Policy within a couple months of moving in), and it further protects you, the Property Owner. 

“How much of my rental income should I insure?”

The question may sound simple, but in my experience many investment property owners have never thought through just how much of their rental income they should or need to have insured.

Here are a few things I discuss with my clients when going over how much of their rental income from a property they should insure, it’s pretty simple, I promise!

1. The length of period that the Carrier is willing to offer for Loss of Income/Rents

2. The Monthly / Annual Revenue you receive from that property 

3. The Average length of time that it takes in their area to rebuild their property

Do some Owners insure for less than their Monthly or Annual income? 

Yes, and for various reasons: sometimes there are Carrier restrictions, and sometimes it’s due to the risk the Property Owner is willing to carry. Everyone is different, but everyone should at least review these questions to ensure they are properly protected.

“Do I really need a Landlord/Rental Policy for my Rental? Isn’t a regular Homeowners Policy enough, it’s less than a Landlord Policy and it looks like the coverages are the same.”

I see this question often in plenty of Facebook Investor and Real Estate pages. And while I commend the author of the post for asking the question, and for starting the process of looking into getting a proper Landlord Policy, my answer will always be the same: Yes, you really do need a Landlord Policy, and here’s why:

While the first lines of coverages may look the same : Dwelling, Separate Structures, Loss of Use, and Guest Medical, the risks are different and therefor the policies are different. If you insure your rental as if it were a standard homeowners policy, indicating that you yourself live in it and not renting it out to others, you are putting yourself and the property at risk for not having any coverage at time of Loss.

It goes unsaid that every Insurance Carrier requires that the policy be written correctly, and if the policy was knowingly written incorrectly (in this case, by you the owner looking to insure the property as a Homeowners versus a Rental), there would not be any coverage extended if there was a loss.

 An example of this would be if your Tenants caused a fire; YOUR Insurance would be the policy would have been the policy that would cover the building as even if your Tenants had Renters Insurance, Renters Insurance does not cover the Building, just their own personal belongings, personal liability and own personal loss of use. If your policy were not written correctly, the Dwelling limit on your Homeowners Policy would not be extended as that coverage was only available if you were living on the property versus your Tenants.

Also, without a proper Landlord Policy, you, the Landlord would not have proper Liability Coverage that would protect you from liability concerns you may face as the owner of the property. 

And of course, one of the most important coverages for many if not all Landlords that I’ve encountered: Loss of Income/Rents, would not be available if there were a loss and you were unable to rent your Property while it sat unoccupied during renovations as Loss of Income/Rents is not a coverage on standard Homeowners polices. 

It may sound like there wouldn’t be any harm in insuring your Rental as a Homeowners policy, but by doing so you are risking not only your property and rental income and liability coverage, AND just because you don’t have proper Landlord Liability coverage it doesn’t mean you still won’t be sued as you are the property owner; which means that you’ll have to pay the lawyer fees and judgement out of pocket -  all to save a little bit of premium up front.