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Posted almost 5 years ago

​The Importance of Renters Insurance to Investors

If you have any residential property, it is imperative that you require and enforce all of your residents to carry renters insurance. If you don’t, you are leaving yourself and your business incredibly exposed!

Renters insurance is often marketed to the actual residents, your tenants. Because of this, common knowledge says that the policy is for providing insurance on the residents’ belongings in the event of a covered loss. Consequently, when I have this conversation with investors, they’re quick to tell me how little they care for the tenants contents and belongings. You may relate to this sentiment… but, not so fast!

Liability

Renters policies are written on the same form as a homeowners policy. The main difference is that the actual building and structure is not covered on the policy. The liability portion of the policy is what investors need to be interested in.

The liability portion of the renters policy covers liability claims (per event and per year) and there are also coverage limits for medical expenses. This creates a giant liability buffer between the residents, their guests, and your insurance policy.

For example, let’s say your resident has a guest over and the classic trip and fall occurs. If your resident has an active renters policy, the first liability claim will hit the renters insurance policy. At this point, in order for the claim to make it to your policy, they’d have to prove the cause of the trip was the investors negligence, not the resident’s lack of maintenance or upkeep (which they’re contractually responsible for, according to your lease).

Similarly, the renters policy will be the first line of defense for property damage. If the resident is cooking a delicious meal and accidentally sets the kitchen on fire and causes damage, this will first be covered by their renters policy. Now, if the resident is intentional on setting fire to your property, that is a completely different story and it is not likely to be covered under their policy.

Verifying Your Renter is Insured

Verifying that your resident has a valid insurance policy falls solely on your hands. What you do to confirm that your residents have their own insurance policy must be consistent and enforceable.

If a claim occurs and no renters policy is in force, it is too late. The chances of the insurance company attempting to pursue the resident as an individual is very slim. From my understanding, even though your lease contractually requires the resident to carry a renters policy, your insurance company will not enforce it.

The lease and requirement to carry a renters policy is yours and yours alone to enforce. Most insurance companies get nervous and want to cancel or non-renew your policy if you have 2 claims in a single year. I have several clients that have several hundred units. Statistically, this magnifies the importance of having a checks and balances for renters insurance in place.

Enforcing Renters Insurance Policies

Unfortunately, there isn’t currently an easy way to go about doing this. You can request to be listed as either an additional insured or additional interest on their policy; however, you are then relying on the insurance company to notify you via snail mail when the policy cancels. This requires that it not be lost either en route or in your pile of other mail.

You can also request a declaration page that shows the policy is active and current; however, after you see it, they can cancel it or stop paying it.

As an insurance professional that understands the downside, I feel it is my duty to say something like, "So, come up with a system to check and verify, and stay consistent and diligent!" But, as an investor, I can't confidently say that all of my tenants have an active policy; nor do I know how to put a streamlined system in place. Do you already have a system in place and want to share it? Let me know!

If you have any questions or want to learn more, don’t hesitate to reach out to discuss. I love spending my time talking about real estate investing.



Comments (6)

  1. Another great article Ryan. You bring up some good recommendations and things to consider. I've been wondering how to enforce an active policy so it's nice to know that others are in the same situation. One of my tenants uses Cozy's renter's insurance which is nice because I manage the property with Cozy. So if the tenant cancels their policy I'll get alerted.

    Thanks for being the go-to resource for insurance for investors and landlords. Keep up the good work!


    1. Thanks Jeff! 

      Did your tenant sign up for Cozy's version through you, or did she find that on her own? Integrating renters insurance through a property management portal is a great idea. 


  2. Asset protection is so important...how wise is it to have your tenant have their own insurance (renter's) as another layer between you and them. 

    Thanks Ryan!


    1. Thanks Steve! 


  3. This is good information Ryan! I always thought that being added as an additional insured on their policy was the key to staying in the loop. I guess ideally we would setup a biannual check-in with the tenant and/or insurance company to verify the policy is active....curious to hear what others are doing. 


    1. Thanks for the feedback, Brett! I think calling the insurance company regularly is a step in the right direction. That is a solid way to make sure. I'm not so sure how scalable that is, though. Calling larger insurance companies can be similar to standing in line at the DMV.