The Fifth Rule of Thumb & Tenant Insurance! – Protect Yourself!!

In today’s society, if you can find a way to protect yourself from a potential lawsuit, you want to do it. Your lease helps to insulate you from liability should something go wrong, but requiring your tenants to have tenant insurance is another way of protecting yourself from potential lawsuits if you are robbed or if your property is destroyed.

When you create your contract, you want to make sure that you have a section in it that discusses liability. You need your tenant to understand that you are not liable for their belongings, no matter what. This is so important that you should have them initial this section so they can’t say that they didn’t understand.

In addition, your manager needs to make it part of the rental process to explain to them how tenant insurance works at this point. They need to know that they can store whatever they want inside the space that you are giving them, as long as it is within the parameters of the lease. However, if something happens to those belongings, it is not your responsibility. Because of that, you require tenant insurance.

By requiring tenant insurance, you are protecting everyone. You can explain to your tenants that while you do everything in your power to prevent it, there is always the slightest possibility that your building could burn down, or a thief could break in. Don’t go overboard, you don’t want to scare away a potential renter, but you do need them to understand why you require them to have this insurance.

This is another source of income for you. Many insurance companies will pay you a referral fee for sending them the insurance business. While you shouldn’t plan on this income, it is a nice bonus. Carriers can pay up to 25% of the policy back to you. But policies have limits and if you are going to sell insurance, you need to know what those limits are. You don’t want someone storing $50,000 worth of items and only carrying $5,000 worth of insurance.

Many renters will ask if they can get their own insurance through their own insurance company. This is fine as long as they provide you with proof of insurance within a few weeks. If they haven’t provided proof of insurance within 30 days, you need to have something in the lease that says you will automatically add in your insurance. You don’t want to rent to people who are not insured.

You can also explain to people the advantages of your insurance over using their homeowner’s insurance. Should they have to make a claim, by using this insurance, they don’t have a costly claim on their homeowner’s insurance and so their rates will not be affected. In addition, these policies do not have a deductible while homeowner’s policies usually start at $1,000 and go up from there.

While it may seem like it is better to have a tenant than no tenant at all, you should make it a policy to not rent to people unless they have insurance. Ultimately, this protects you. You don’t want to have that awkward conversation if something awful happens, and you didn’t require them to protect their belongings. You don’t want that additional liability while you are trying to manage whatever disaster happened too.

Finally, when you purchase a self-storage facility, verify that the existing tenants have insurance. If they don’t, that is something that you will need to address in your welcome letter. You can spin it in such a way that the renters will understand that while it may cost a little more, it is in their best interests that you require it.

Tenant insurance is one more way of protecting yourself should the worst happen. With mother nature getting more and more severe, this is something that you should look into if you don’t already require it. As always, happy investing.