Articles : Renters Insurance: Worthwhile Landlord Requirement or Unnecessary Tenant Burden?

When tenants rent apartments, there are so many things that they need to consider. If you were to make a list of the top ten things they should be thinking about, the question of how they would replace their personal property if it were stolen from or damaged inside the unit would certainly have a place on that list. Another item that would be included is where would they get the money to compensate you if their negligence caused loss to the structure itself?

These are the very issues insurance is designed to address. The problem is that most of your tenants will not be aware that they aren’t addressed by your homeowners insurance. These types of policies only cover non-negligent damage to the building, and to the loss of your own personal property.

To safeguard their personal belongings and to have liability protection, the tenant needs to purchase renter’s insurance. Kip Diggs of the Corporate Public Affairs Department at State Farm Insurance says that, “In addition to contents coverage, renters insurance also provides liability coverage for the policyholder and medical payments coverage which provides immediate medical expenses coverage without regard to fault.”

The liability insurance not only covers liability for damage to their apartment or the general structure because of negligence, but it also provides coverage if a guest is injured while in their apartment. If another person’s property is stolen or destroyed while it is in the tenant’s unit, renter’s insurance will cover that, too.

Included within the liability portion of the policy are medical payments if the tenant’s guest is injured and requires medical help. This coverage extends to persons who are hurt while in the tenant’s apartment on business-related matters as well.

The amount the tenant will receive if a claim is made depends upon whether or not it is an "actual cash value" policy or "replacement cost coverage" policy. Actual cash value coverage will pay only what the property is worth at the time it is damaged or stolen minus the policy deductible.

Replacement cost coverage is the better alternative of the two, because it pays the insured what it really costs to replace the lost or stolen items minus the deductible. Needless to say, this option is also the more expensive of the two. Keep in mind that state law determines the kind of payout on a policy, so an insurance company can offer replacement cost coverage in one state while at the same time being limited to offering actual cash value in another.

In addition to the coverage provided by the basic policy, tenants with high-tickets items like home entertainment equipment, or pricey pieces of jewelry should have the additional protection of a rider. This provides coverage for the full loss of these items even if it is beyond the limits of the policy.

Although it’s easy to see why tenants need renter’s insurance, it isn’t as obvious what the benefits are for the landlord. According to Kip, the fact that your tenant has insurance coverage doesn’t affect the amount of homeowners insurance you need to carry to be sure your property is fully protected.

In fact, even if the tenant has renter’s insurance, it doesn’t remove landlord liability in all instances, Kip explained. “The landlord is going to be responsible for maintenance and liability of common areas, like parking lots, stairwells and sidewalks. The renter is generally responsible for the areas under their control.”

So why would consider making renter’s insurance a provision in the lease agreement? The answer is quite clear. Paying for property damage resulting from your tenant’s negligent behavior can get pretty expensive. If your tenant doesn’t have coverage, you have two alternatives to defray the cost. You can either raise the rents of other tenants (if you have them), and risk losing them; or you can put in a claim against your homeowner’s insurance, and get hit with higher premiums.

However, if your tenant has renter’s insurance, it provides a third and clearly the most preferable option because it takes the onus off of you to find repair money. And as every landlord knows, maintenance is a large part of your job regardless of what it costs.