Should I make my tenants get rental insurance?

Question

I've seen a lot of people recommending mandating tenants get rental insurance, but I don't understand why. I'll have insurance on the home to protect myself, but why is it my business if they insure their own property or not? I'd like to highly encourage they get it, but should I make it a requirement?

Thank you all so much for your time!!!

JD Martin · Answer

Yes, you should require it. Who cares if the tenant's stuff gets burned up in a fire or other act of God? The reason you want them to have renter's insurance (with you listed as additional interest and/or additional insured) is because you want to have someplace to go outside of your own insurance if they do serious damage in excess of what the deposit covers. We've had two tenants so far, ever, that had damages that exceeded the deposit and it was back when we left that insurance as optional so we had to eat the excess damages. Once we started requiring insurance, if someone trashes the unit we just file a claim on their insurance or our insurance - it doesn't matter, as our insurance will abrogate against their insurance - and presto! Damages covered beyond the deposit.

Sylvia B. · Answer

We require our tenants to have renter's insurance. If they do not already have a policy, (which many do) we pay for a minimal policy for them. They must apply, but we pay the bill. It has $5000 coverage for their belongings plus $100,000 liability. It costs us $40-75 per year. They are welcome to buy their own policy at any level of coverage they want, of course.

Matthew McKee · Answer

I put it in everyone of my leases to provide a copy of a current policy. I’ve never had a drop in demand for my rentals over that.

Matthew McKee · Answer

And to your point about what business it is of yours… you should be viewing your investment property as a business.

Nathan Gesner · Answer

Renter insurance includes two pieces: liability and personal property.

The liability insurance will cover your property if the tenant causes the damage. For example, one of my tenants started a kitchen fire that cost $12,000 to renovate. It was paid by the Tenant's insurance and they paid the deductible, not me. This article explains it in more depth: https://www.mysmartmove.com/Sm...

You should require your tenant to add you to the insurance policy as "additional insured" so you are covered under their policy. You will also be notified if they ever cancel their insurance or allow it to lapse, making it easy to track compliance.

Kyle Mccaw · Answer

@Bryce Jamison Some issues that arise are too small to justify claiming on your landlord policy. You also don't have to deal with deductible or co-insurance if your tenant's insurance pay for a small kitchen fire. Co-insurance will play a more important role with your investments the larger portfolio you get. I think it important to mention that there is a difference between renters insurance and tenant liability insurance.The main difference between renters insurance and tenant liability insurance is, renter's insurance will cover the tenant's personal property in case of a disaster. Tenant liability insurance will cover damages done to the landlords property that was directly caused by the tenants. From all that I have seem renter's insurance will include tenant liability insurance but not the other way around.

My insurance guru @Cameron Moore may be able to speak more about this.

Michael Radney · Answer

@Bryce Jamison yes, because it saves you money.  Over time you'll have a tenant's actions damage your unit beyond what they can afford or are willing to pay.  When that happens, insurance pays, not you.

Without insurance, their unexpected problem suddenly becomes your problem and starts costing you money.  Why?  Tenants usually don't plan or have the money for future unexpected large costs.  When something like that happens, they'll typically turn to you for payment.  Doesn't matter that it wasn't your fault.  If you don't help, usually they'll just stop paying rent or break the lease and move out.  Or sometimes get an attorney to try holding you responsible.  Yes, you have a lease with clauses you can enforce to hold them accountable and limit or indemnify your liability.  In reality you're almost never going to recover that lost money.  Again, may not be your fault but meantime you're spending money.  If there's no insurance, you end up working the numbers and usually see it's cheaper to absorb some or all of that cost rather than turn the unit over and rent it again.

Avoiding increased premiums is smart business too.

Bryce Jamison · Answer

@Alex Talcott Thanks Alex! So a lower homeowner insurance rate on my end is the big reason to mandate it? Are there any other benefits to requiring it? I guess that's my real question.

Jordan Moorhead · Answer

I make mine get it and they can buy it through the rental management software I use for like $15 a month

Jon Blue · Answer

It probably varies state by state but here in Texas renters policies cover $100,000 minimum of property damage. This is not for the personal belongings of the tenant, It is for damage to real property. Even apartment complexes here in Austin Texas require for rental insurance policies as part of their lease agreement.

Should I make my tenants get rental insurance?

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