How much renter's insurance should tenants carry?

Question

I tried searching around here but couldn't find a good answer.

I will be contacting my insurance company to switch my current insurance to a rental property vs. my primary home.

My renter has agreed to carry renters insurance, but asked how much he should get the policy for -- good question, I'm not sure how it's supposed to work.  He said there was an amount for liability and for personal; currently has a quote at $100K liabilty/30K personal.  IIRC, my property was valued at ~$200K, with the house costing ~$160K to rebuild, according to the last thing I got in the mail.

Thank you.

Bill S. · Answer

When my house was struck by lightening and caught fire, the tenants wished they had renters insurance for their belongings damaged by smoke.

Donald Stevens · Answer

Thats why renters insurance is so cheap. The rate of payout is low. The average client that buys renters insurance is a more responsible tenant (on average, not always) than a tenant that doesnt. If anyone here rents space in a commercial building you will see in most lease agreements a right to subrogate and a requirement by the commercial buildings insurance company for all tenants to carry insurance so they can subrogate fire claims. Check with your insurance company, they may offer you a discount if you require your tenants to carry insurance. The reason is it lowers the average claim your insurance carrier has to pay, because they can subrogate and the tenant on average is a more responsible tenant.

John Rooster · Answer

In my 150+ tenant years of landlording, I have never had a situation where renter's insurance would have been triggered for a claim. I have a generic requirement in my leases requiring the tenant to have renter insurance, but I never bother requesting proof of insurance, and I suspect most of my tenants do not buy renter's insurance, it is only there so I can say "the lease requires you to have renter's insurance, it is not my problem you didn't get renter's insurance for your belongings"

Donald Stevens · Answer

The minimum liablity on renters insurance that I have seen is 25k. That being said most carriers wont write a policy for less than 100k.

The main reason you want the tenant to have a renters insurance policy is for the fire legal liability limit. Its the part of the policy that states if the renter were to be the cause of damage to your property, their renters insurance will pay up to typically 100k for the damages. Your insurance company can subrogate fire damage to the tenants policy which reduces your claim size. The liability will not transfer to you but if they are the cause of a liability claim, the attorney has someone to go after besides you. If they dont have a policy they could try to add you to the suit. They need to get paid from someone.

Tim Norris · Answer

Anything is better than nothing, that's for sure!

David L. · Answer

Thanks for the replies.  If I am to understand this right, the insurance I will maintain on the property as a "rental" will cover any rebuilding costs, and tenant's insurance will cover their belongings.  Tell them $100K liability is good if they feel comfortable it will cover all of their assets.

Thanks again.

- Dave

Chanté Owens · Answer

Renters insurance policies are relatively inexpensive (I know, that's subjective). As Billy Gulley said, there is the 80% coinsurance, as well as limits are certain items, ie, cash is (typically on most policies) covered only up to $200. Also, jewelry is typically a set max too; however, they can get a rider on their policy and get an appraisal if they have jewelry that exceeds the amount the policy covers (which is typically $1500 or $2500, but policies due vary, so will need to confirm).

Finally, when purchasing a policy, I recommend doing an extensive inventory of items and if at all possible, taking pictures of those items. And as a precaution, I'd recommend also retaining receipts (scan them if necessary to save on space). I had a situation where my bag was stolen from the airport (many years ago; hence the reason I no longer check luggage), and they wanted to give me a paltry amount, but I showed my receipts from some expensive items, and they were forced to pay that amount, so documentation is key.

Bill Gulley · Answer

Property and casualty coverage usually will have an 80% co-insurance clause that basically says the insured must carry at least 80% of the value of property insured to be considered fully insured, having less coverage is deemed to become a self-insured situation where the insured assumes a level of insuring part of the loss along with the insurer. They accept a % of the risks.

So, they need to see if that concept applies to their casualty policy. Then, all they are insuring is the value of personal property. There are excluded or limited items, such as cash, electronics, collections and such that may need to be looked at specifically and insured by riders or endorsements to a basic policy, if they choose to insure over those limited amounts.

The issue for you is the liability coverage they obtain under a tenant's policy, that's the only concern you have and that could reduce your liability issues, so you should check with your agent.

Many variables will apply in determining their liability issues and yours as well as how and when your insurance may be affected with any claim arising from negligence of a tenant. Personally, if my tenants kept their liability at $100,000 per occurrence I'd be pretty happy. If you are to require coverage I'd say that would be the minimum to be required. :)

Elizabeth Colegrove · Answer

@David L.

Your landlord's policy will cover rebuilding it but will not cover the tenants "stuff". I would make sure that they have enough insurance to cover their belongs. Even as newly married professional couple we had 50k if we had to replace everything.

How much renter's insurance should tenants carry?

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