As an apartment owner, you want to protect your property against potential damages. It’s a given that you should invest in a strong insurance plan in order to guard against common risks. But should you require your renters to take out their own renters’ policies as well?
It’s up to your discretion what to specify in your tenants’ contract, and one stipulation you can choose to include is requiring tenants to buy insurance. There are a number of reasons you may want to do this, both for your protection and your tenants’, but there are also some arguments against it. We’ll explain the basics of building owners’ insurance and where renters’ insurance may need to fill in the gaps.
What Does Building Owners’ Insurance Cover?
Landlord insurance usually consists of two main types of coverage: property insurance and general liability protection.
Property insurance covers the physical aspects of the property. It will help pay to repair structural damage caused by fires, storms, or other covered losses. In addition to the building itself, property insurance may cover maintenance equipment you keep on site to maintain it, and it may also include attached structures such as fences and parking covers.
General liability coverage protects you against legal and medical expenses if someone is injured on your property and you are deemed responsible, as well as other risks such as slander and some forms of property damage. Other aspects of commercial property insurance that can be added may cover vandalism, burglary, a rental property under construction, and aspects of the building code (such as wiring or ventilation).
What Doesn’t a Landlord’s Insurance Cover?
A typical commercial property insurance plan helps pay for a variety of expenses caused by liability claims and natural disasters. However, there are some gaps in what it covers.
A landlord’s insurance policy does not cover tenants’ personal possessions in the case of theft or damage. It also may not cover damage caused directly by tenants, whether intentionally or through negligence.
How Renters’ Insurance Can Help
Renters’ insurance helps by filling in those areas that a building owner’s insurance won’t cover.
It protects tenants’ personal property by paying to replace belongings that are damaged or stolen. It also covers tenants when it comes to liability. If a tenant is found legally responsible for damage to the property, they may be left to shoulder expenses which they are unable to pay. Renters’ insurance takes that responsibility off of them and ensures that the cost of any property damages caused by tenants will be reimbursed to the building owner.
The Pros and Cons of Requiring Renters’ Insurance
Most tenants can see the distinct advantages of getting renters’ insurance over not buying it. While there are not many disadvantages of renters’ insurance, there are a few things to consider for landlords considering making it a condition of renting:
Pros
Affordability. Tenants may be surprised to learn that a renters’ insurance policy can cost as little as $10 to $15 per month while covering up to $50,000 of damages. As such, it is very affordable, especially considering that even small damages like a burst pipe cost an average of nearly $3,000. For less than $200 total a year, the potential return of a renters’ insurance policy is significant.
Protection against disaster. The most obvious benefit of renters’ insurance is that tenants are protected against potential disasters, both in terms of their personal belongings and the costs they would be liable for if they were responsible for the damages.
Building owners also gain protection from disasters that are caused by tenants and are otherwise left unprotected by commercial policies. Otherwise, expenses from such cases would fall to the tenants, who are not likely able to pay the damages back in full.
Cons
Additional expense. The cost is essentially the only downside of renters’ insurance. However, although renters’ insurance is a small expense, tenants may still balk at the idea of paying additional costs, especially if they are already on a tight budget.
This may decrease your pool of potential tenants, which could be bad if the market is struggling. However, this could also limit your pool to tenants who are responsible and concerned with their own safety and the building’s maintenance, which is exactly the type of tenant you want to attract.
Should Apartment Owners Require Renters’ Insurance?
When you’re considering whether to make renters’ insurance a necessity for tenants, it’s best to both evaluate your market and to educate potential tenants on the low cost of renters’ insurance. Such a requirement may be initially off-putting, but when potential tenants are informed of its affordability and benefits, good tenants will likely find it worth the cost.
You should always consider the factors before insisting on your tenant buying a renters’ insurance policy. And if you decide not to make it a requirement for renting, you should still strongly encourage your renters to invest in one. Doing so can only result in better protection for you, your tenant, and your property.
