Does Renters Insurance protect investors? Probably not.

Question

A common theme is for landlords to require their tenants to purchase a Renters Insurance policy.  Some take the next step and have them prove it (good idea).  Here's the problem, an independent study was completed that showed that over HALF of the Renters policies that are purchased are cancelled within the first calendar year.  The widely accepted belief is that a tenant will buy a policy, show the dec page to the landlord or MGMT company, and then immediately cancel it.  Unless you or the MGMT company are constantly checking to make sure the policy is in force, then it's probably useless.

So what should you be doing?  You should be searching for a Renters Legal Liability policy.  The offerings vary, but generally it provides a landlord with $100,000 of coverage from their tenants (or tenants guests) accidents or negligence that causes a loss to your asset.  And the beauty of it is you are the named insured, meaning you don't have to chase a tenants policy for reimbursement, you (and I) handle the claim from start to finish and are reimbursed directly.  They usually cost $8-$10 a month, and you can remove the requirement for Renters coverage so it should net out for your tenants (as you will pass this cost onto them), but you are assured that all tenants are covered.  No tracking, no headaches.

If you own more than 50 units, reach out.  I can help you.

Drew

Greg M. · Answer

You're missing many facts:

1) Have the tenant list you as an Additional Interest and if the policy is canceled, you get notification. At this point you force the tenant to reinstate it; purchase it on behalf of the tenant; or start the eviction process.

2) A landlord need not chase after a tenants policy. They just need to report the claim to their insurance company and their insurance company will go after the tenants policy and do all the work.

3) If I'm the insured and a claim happens, then that is a ding on me and my property. The beauty of Renters Insurance is that the claim is not on my record or property.

4) The cost of this policy is the same as Renters Insurance, but it doesn't cover the renters personal property, and is worse for you when a claim comes in.

Pass.

Drew Maconachy · Answer

Greg-

Thanks for the post.  I'll address each of your points:

1) You are correct, if you are listed as an Additional Interest you will get notified that they no longer have insurance and you would need to follow your steps.  All of that takes time, effort, and potentially losing a tenant.  And if you have 100+ doors this is a substantial time suck.  This product eliminates you investing any time at all regarding this important issue.

2) Also correct, however in point three you mention "dings" on your record.  By putting your P&C insurer on notice and having them chase the Renters policy, you will create a "ding" on your policy (as the claim would be filed against your Property policy).  It shouldn't have any claims payment associated with it, but insurance underwriters are more concerned with frequency of claims than severity as it is an indicator of the PM's professionalism, so why create an unnecessary "ding" on your P&C placement?

3) Correct, this will create a "ding", but ONLY with regards to this specific policy.  You will package your Property, GL, and Umbrella coverage with a another insurer, and they would never be notified of your turning in a claim to the policy that I am recommending.  If you get to many "dings" on the Renters Legal Liability policy, rates will go up and you could decide to end it and go back to individual Renters policies and their headaches at that point.

4) Incorrect - This $100,000 limit (which is more than most Renters policies provide by the way) is dedicated to fixing your asset first (just like you would want), but if the $100,000 limit isn't used up fixing your asset then your renters have up to $15,000 to cover their personal property.

In summary, the product costs about the same, provides coverage to the asset owner FIRST, requires no tracking/monitoring by you or your staff, doesn't open the owner up to exposure between when you find their policy has lapsed and you get it corrected, and will decrease your P&C costs.  If you are large enough to qualify for these programs, they are unequivocally better than Renters policies for an asset owner.