Would you require renter insurance for new leases?

Question

Just picked up a portfolio of 5 properties. 2 duplex and 3 single-family. Duplex rents are $900/month. Single-family are $2000/month.

Debating requiring all tenants to have renters insurance ($100K liability)? I have PM service and they can make sure folks get it.. but is there any reason NOT to do this? will this scare off renters or lower the rents I receive?

Thank you!

John Sheedy · Answer

Check your local laws and if possible I highly recommend mandating it. Renters insurance is like $15/mo, if they can't afford that then are you sure you even want them renting in the first place?

Tevis Verrett · Answer

Hi Arjun K., This is the verbage in my lease: INSURANCE A) Landlord’s Insurance Policy does not cover any of Tenant’s personal property. Landlord will carry no Insurance that covers any of the Tenant’s property. B) If there is any loss or damage to tenants property due to water, fire, theft, burglary, act of nature or other, tenant agrees to relieve Landlord from any and all responsibility. C) Landlord recommends that the Tenant carry Renters Insurance or any other form of insurance to protect their belongings as well as their guests belongings. D) Landlord is not responsible for any damage or theft to any guest’s property. My good luck all, YMMV! Tevis

George Paiva · Answer

I have this line in mine. Tenants don't care about insurance till something happens and they ask you to remediate it. LOL ? INSURANCE You understand and agree that it shall be your own obligation to insure your personal property.

Christopher B. · Answer

I work part-time for an apartment complex in addition to getting my rei business up. My company's portfolio is worth in excess of $80m, primarily large-scale rental complexes, and they require all of their tenants to have renters insurance. A minimum of $100k liability with the property as the beneficiary. It's worth it, it protects the tenant and the company. The tenant isn't going to pay you $10k if they have a stove fire and set the place ablaze destroying the kitchen. This policy costs the tenants about $12/month which is nothing. They use First American Property & Casualty Insurance. Also, the tenants can get $10k personal coverage for an extra $3 bucks a month or so. I'll be requiring all of my future tenants and re-signs to carry renters insurance as well. Call them up to get rates, I don't know if that is discounted pricing offered to our company or not.

Aly W. · Answer

I don't require it on my lower end properties, but every tenant initials the clause in the lease that says my property insurance does not cover their personal property, and that renters insurance is strongly suggested. On the higher end properties, they are familiar with it and definitely get it.

Bill Gulley · Answer

Welcome to BP Mahesh! Good idea. If you have an insured loss, a fire, many times the tenant will look to you for damages, they should have had contents coverage. If the fire was a result of your negligence they can make a claim and your liability coverage would kick in to defend or pay the claim. An acknowlegment simply shows they knew they were not covered and puts the matter of insurance on them, such were in my leases they signed.

Tevis Verrett · Answer

Bravo that Sam! Pleased that you can glean goodness out of this! Blessings All, Tevis

Michael B. · Answer

I tend to disagree with most said here. Rental insurance has one of lowest claims payout ratios in the industry. Just too much is eaten up with overhead and management of such small premiums and handling such small claims. The low payouts make the insurance a loser for way too many people. The numbers are pretty bad. The average loss ratio for property and casualty lines (of which renter's is a small part) is about 71% --> companies pay out about 71% of premiums in claims. For renters insurance the loss ratio comes down into the upper 20's --> over 70% of the premium is eaten up by overhead. That's why if you do a Google search of "renter's insurance" you get at least 10 pages of companies offering it. It's just so profitable. I don't tend to encourage my tenants to pay a 'poor tax'. I'd rather they stay away from pawn shops and payday loans. And renter's insurance fits in that category.

Sam W. · Answer

Tevis Verrett, I'm right in the middle of drafting a new lease...I'm going to steal...errrr.....borrow your wording. Thanks

Arjun K. · Answer

Thank you for all of the replies. The argument that resounds to me is, "if they cannot afford to get it, they shouldn't be in your properties anyway". I like that argument a lot. The question is where is the line-in-sand for affordability. I imagine 1% extra a month is reasonable.. and that is $10/month on $1,000 rent. So I think $900/month rent is reasonable to demand renter's insurance. And $2,000/month seems like a no brainer...