RENTERS INSURANCE: IS IT IMPORTANT?

The importance of a rental insurance policy is often misunderstood by tenants and landlords alike. As a landlord, you could require tenants to purchase a renter’s policy. This benefits you and the tenant. A policy will provide coverage for the tenant’s belongings, and can relieve you of possible liabilities. Running a rental property isn’t easy, but worry not, Proway Property Management is here to help.

What’s in it for your tenants?

According to the U.S. Census Bureau, 45% of Michigan residents live in rental properties. Among them, only a small percentage have a renter’s insurance policy in place. This indicates that most tenants have to pay out of pocket for any losses and liabilities that occur in the property.

A renter’s insurance policy will protect your tenants from things that are beyond their control, such as natural disasters, theft and vandalism. Here’s a quick look at what renter’s insurance covers:

• Renter’s liability – medical expenses and punitive damages. This depends on the coverage of the insurance policy provider. If your tenants cause injury or damage to your property, medical expenses are covered from $1,000 to $5,000 . Most limits for legal costs usually start around $100,000.

• Personal belongings – pays for the replacement or repair of the tenant’s personal items on the property. This may also include items that they carry in their car or luggage. In such “off-market” coverages, this is mostly limited to a portion of the renters insurance’s total coverage, usually around 10%.

• Temporary housing – pays for relocation in cases of safety issues or damage to the property forcing everyone out of the property

• Umbrella coverage – covers additional liability costs that exceed the limits of renters insurance. Some policies include coverage from dog bites, and other incidents which may happen on or off the property.

The coverage varies from state to state. The ones we’ve mentioned are common with what the insurance providers in Michigan offer. It’s important to understand that this insurance does not cover everything. Here are a few exceptions:

• Natural disasters – surprisingly, damage caused by windstorms and volcanic eruptions are covered, but those from flooding, earthquakes and sinkholes are not. The insurance providers refuse to accommodate this on the basis that a separate flood insurance policy provider already exists.

• Property damage caused by pests – rodents, bugs and similar vermin are not covered.

• Items of high value – your tenant’s personal belongings are only covered up to a certain degree. Expensive items like jewelry and costly electronics may not be fully insured on a basic policy. A limit is set for every type of item. For example, a limit of up to $1,500 is set for jewelry and a $2,500 maximum is usually in place for electronic items.

There are other exceptions too, like the security deposit. A lost deposit is not included in the renter’s insurance. We’ve mentioned that even items that were stolen from your car are covered, but your vehicle is not (that’s what car insurance is for). In cases where you share the property with a roommate, each individual needs their own insurance policy covering their personal belongings. Joint policies may be available.

Common misconceptions

Most tenants figure the only service fees, in addition to rent, they may need to pay are utility bills. You may have a hard time asking your tenants to add renters insurance on top of their rent. A few of the common responses why tenants decline are:

“I’ve never heard about it” – it’s not a mandatory thing, so it’s possible that your new tenant hasn’t heard of it from his/her previous landlord, or they are a first time renter.

“It’s too expensive” – it really isn’t. This is very common for first-time tenants and millenials. The average rental insurance cost in Michigan is about $164 per year (almost $14/mo) – that’s cheaper than your specialty coffee drink you buy every week.

“I don’t need it” – tenants may argue that they have better things to spend money on, than on something they probably won’t need. Explain to them, that taking the risk of something bad happening without proper insurance can prove to be much more costly. It can give them peace of mind knowing they’re covered.

Benefit to the Landlord/Owner

• Something happens to the property – say damage happens to the property, and it’s temporarily not liveable. You may feel responsible to help the tenant secure temporary housing. A renters insurance policy will cover this.

• Renter causes damage to the property – say the renter inadvertently starts a fire. Your owner’s policy will pay for the repair, but not the deductible. A renters insurance policy will cover the deductible.

• Mitigate legal issues – if a tenant’s belongings are damaged, and the tenant does not have insurance, it’s possible that some of the responsibility will fall on the landlord/owner.

• Helps screen tenants – if you require tenants to acquire renters insurance, and the applicant says they cannot afford it, this may signal they cannot comfortably pay the rent.

• Peace of mind – if your tenants have renters insurance, you can avoid legal fees for things that are not your responsibility. You’ll know your tenant’s belongings, and your property are covered.

It may be hard to convince your tenants about the importance of purchasing a renters insurance policy, without them understanding the basics of it. Educate them on the benefits, and how it protects them. It’s another way to build a good tenant – landlord/owner relationship.

Discussing renters insurance shouldn’t be a daunting process. ProWay Property Management knows how challenging it is to manage a rental property. Lots of paperwork, will always be involved. Our services are brought to you by a team of licensed professionals who have a deep knowledge about Detroit, and Southeast Michigan property management. Allow us to lend you a hand to ensure your property is well-managed. Contact us now at (734) 744-5080 or email us at [email protected] to learn more.