Insurance options - would like your opinion

[Jeff L.]

I'm going for an Actual Cash Value policy instead of Replacement Cost.

1) Should I get the loss of rent option? Not sure how valuable this is.

2) The basic policy doesn't cover water damage. Is water damage coverage a must? It'll cost more.

3) How much liability coverage do you prefer to get?

4) Do you require your tenants to get renter's insurance?

[BreAnn Stephenson]

Originally posted by @Rob Beland:

I never require renters insurance. If I did I probably wouldnt have any fenants. 

 First of all, great points in your post Rob...! 

I did want to address the two items above from an insurance or loss prevention perspective... 

It's not unusual for investors to feel reluctant to mandate their tenants to purchase renter's insurance, but I would propose some benefits to investors and then have a suggestion as to getting your tenants on board with carrying it.

1. Renter's insurance can safeguard your relationship with your insurance carrier. If your tenant is at fault for unintentional damage to your property (overflows a bathtub, leaves a candle burning while out for the evening and burns the house down), you can "run" to their coverage first and potentially avoid having to file a claim with your carrier. Reducing claims frequency will help with the stability of your rates and help secure a wider variety of coverage options for your property.

2. If you opt for Basic Form coverage that doesn't include water damage, and your tenant also doesn't have renter's insurance, you could be opening yourself up to an exposure. For example, if your tenant decides they can't afford the heating bill and they decide to turn the heat to 45 degrees - or OFF - and a pipe bursts...voila! you have water damage that will most likely be paid for out of your pocket. Really the point here is that you could end up paying for damages that your tenant causes when there could be coverage available.

3. Renter's insurance is really inexpensive. Typical cost for standard limits is ~$15-$25/mo. Renters who obtain the coverage through their auto carrier can typically get multi-line discounts too which can also save them on the cost.

4. You might get better tenants. If someone is prudent enough to have obtained renter's coverage of their own volition, it is a demonstration of responsibility. More responsible tenants mean less chance of something going seriously wrong at your property and also chances are, less wear-and-tear damage to pay for in between renters... Not to mention an increase in stability, less evictions, etc... Always remember that there isn't ANY insurance that covers intentional damage done by tenants. The better your relationship with them, the less likely you are to face that difficulty.

Why should renters have coverage? (i.e. benefits to stress to your tenants)

a. It covers their "stuff". Renters need to think about what it would cost to replace some or all of their possessions if there were to be a fire or a break-in. Many people cannot afford to replace their collection of electronics, furniture and even replacing clothing is very expensive even if you are building a wardrobe at Wal-Mart prices.

b. If they are responsible (via their negligence) for damaging your property, they will be protected from having to pay out of their own pocket or from the threat of you suing them. "Wear-and-tear" is a part of the rental business and one reason for collecting a security deposit, but if there is a kitchen fire, it is doubtful that the deposit will cover those repairs.

One idea to encourage tenants to purchase insurance... 

Consider building in an additional $20 to your rental rate to new tenants, require that they obtain the coverage, but also offer a $20/mo. discount when they give you a copy of their proof of coverage. You are not making any less on rent, the tenant has coverage that benefits them and you, and they feel like they aren't having to pay for the coverage either. If my landlord required that I purchase renter's insurance and I knew that I'd be "reimbursed" for it so it essentially was no cost to me, I'd take that deal... 

I hope that helps...!

-BreAnn