Due to a somewhat confusing terminology, many mistakenly think landlord and renters insurance is the same type of policy. Landlord insurance provides coverage for property owners renting out their dwellings to tenants, while renters insurance is intended for the actual tenant and their needs.
What is landlord insurance?
Landlord insurance is a type of insurance policy designed for property owners who rent out their properties. It provides financial protection for landlords against various risks and liabilities associated with owning and renting out real estate, such as:
Dwelling coverage: for the property structure aka the building itself
Liability coverage: if someone is injured on the property and decides to file a lawsuit against you
Loss of Rental Income: if the rental unit becomes temporarily uninhabitable
You also have the option to add additional coverages for personal contents such as furniture, equipment breakdown for HVAC and more in order to fit your specific needs as a landlord.
What is renters insurance?
Renters insurance is designed to protect the tenant and the potential financial risks associated with renting. As renters insurance naturally does not include dwelling coverage, it’s a relatively inexpensive insurance policy. According to NerdWallet, the average price for renters insurance was $12 a month in 2023.
As per a Zillow survey, just half of existing and potential tenants have renters insurance. Surprisingly, a quarter of them cite their lack of knowledge about the insurance's necessity as the reason for not having it. Many don't understand that their personal belongings are almost never covered by landlord insurance, and should they need to relocate immediately or temporarily, this could also be covered by renters insurance.
The coverages that are included with the renter's insurance policy may vary between the carriers, but the following are standard coverages with most carriers:
Personal property: If your stuff gets stolen or damaged. Certain items such as fine art, bicycles or portable electronics may require additional coverage
Personal liability: If someone gets hurt on your property and takes legal action as a result
Loss of use and additional living expenses: If you need to vacate the property as a result of a covered loss, your insurance carrier could for example cover hotel expenses and a storage unit for your belongings until you get resettled.
Medical expenses: If a third party is injured on the rental property and needs treatment
Can a landlord force a tenant to get renters insurance?
Yes, in most states a landlord can make having a valid renters insurance part of the legal agreement. As of 2023, Oklahoma was the only exception to this rule, but as laws and regulations are frequently changing, make sure to check your state’s policy on the matter before adding renters insurance as a lease term.
Why having renters insurance is worthwhile for both parties
As mentioned above, renters insurance is usually no more than $10-$20 dollars a month. If your tenant can’t afford to cover these costs, it could be a red flag. Alternatively, you could factor in these expenses when setting the rent, and offer to cover the expenses.
Renters insurance is beneficial for both tenants and landlords for several reasons, as it provides financial protection and peace of mind to both parties. In the case of a loss, a landlord policy would normally not cover a tenants personal belongings, but a renters insurance policy would cover this (minus the deductible)
Additionally, renters insurance ensures that tenants have a financial safety net. If a covered event, renders the rental property uninhabitable, the tenant's renters insurance typically covers their additional living expenses (ALE), such as temporary accommodation and meals. This means that tenants are more likely to have the means to continue paying rent even in challenging circumstances, reducing the risk of rent payment issues for landlords.
Overall, renters insurance promotes a sense of responsibility and security among tenants while minimizing potential financial risks for landlords. By providing coverage for both personal property and liability, renters insurance is a win-win for tenants and landlords. The main reasons for requesting tenants to get renters insurance seen from a lanlords perspective are:
- Liability Protection: Renters insurance provides liability coverage for tenants. If a tenant accidentally damages the property or causes harm to others while living in the rental unit, their insurance can cover the associated costs. This can help protect the landlord from potential legal disputes and financial losses.
- Property Protection: While landlords typically have insurance to cover the structure of the building, they usually do not cover the tenant's personal belongings. Requiring renters insurance ensures that tenants have coverage for their personal property, such as furniture, electronics, and clothing. This reduces the likelihood of disputes over property damage and loss.
- Reduced Financial Risk: Renters insurance helps tenants bear the financial responsibility for unexpected events, such as fires, theft, or natural disasters. When tenants have insurance, they are more likely to be able to replace their belongings and cover additional living expenses, reducing the risk that they will be unable to pay rent due to unforeseen circumstances.