What is your experience with renter default insurance?

Question

I just learned about renter's default insurance today. I wonder if anyone has experience with it? What is your view and experience with it? Would you recommend landlord to get it? I would appreciate any insight. Thanks!

Jody Sperling · Answer

I sell insurance for a living, though I'm not licensed in every state or for Health or Life. Please take my comments as general guidelines that I've observed from working in the industry.

Renter's Default Insurance is one of a few products in the insurance space that earns the insurance company the most money. What inevitably happens if you purchase the product is one of three outcomes:

1. You buy and pay the premiums without needing the coverage for many years. Pure profit for the carrier.

2. You buy and pay the premiums for a time, then file a claim. The carrier pays and raises your premium to offset the loss. In short order, you pay more than the carrier covered.

3. You buy and pay the premiums for a time, then file a claim. The carrier nonrenews and you can't find another carrier to cover you.

Instead of buying this coverage, build vacancy into your investment profile. Only purchase properties that will cashflow with a month of vacancy factored in per year. If you don't experience vacancy, the money is gravy. If you do, you'll float because it was part of your analysis.

Best of luck, whatever you choose!