Many landlords understand the importance of requiring their tenants to have renters insurance. However, many landlords fail to implement a program to make sure their tenants have an active renter’s insurance policy when a claim occurs. This can be a very expensive mistake! I will explain what you need to do to make sure your tenant has renters insurance when you most need it, but first I will list a few reasons why it is so important for landlords to require their tenants to have renters insurance.

1. Renters insurance reduces the chance of tenants suing you if their personal property is damaged or stolen.

For example, a fire or theft, because of a failure to maintain the rental property, can lead to a lawsuit. Even if you don’t think it is likely you will found negligent, you may still have to bear the cost of legal defense. If your tenant is compensated for the damage to their property from their renters insurance, they will be less likely to sue you.

2. Requiring renters insurance for all your tenants reduces the likelihood you will be sued due to the negligence of your tenants.

For example, a tenant leaves an unattended candle burning, causing a fire which damages the personal property of other tenants. The liability of the tenant responsible for the fire will be covered by their renters insurance.

3. Requiring renters insurance can protect your property, if your tenants are negligent and damage it, and keep you from having to place a claim on your own insurance — which can cause your insurance rates to increase, or your insurance to be canceled.

Take the example used above of a fire caused by a tenants unattended candle. The damage to your building is covered by the tenant’s renters insurance if the tenant is negligent, so you won’t have to place a claim on your own insurance.

Now, here is how to implement a program to make sure your tenants have renters insurance.

1. Don’t trust your property management firm to handle your renters insurance requirement for you.

A good property management firm can help you avoid the hassle of screening tenants, collecting rents, and handling repair calls and tenant complaints. But you don’t want to depend on the property management company to make sure you have a proper insurance program.

Even if managing the insurance for the property is one of their contractual obligations to you, would you rather have the insurance you need in force when you need it, or sue your property management firm for failing to do their job? Not only do you have the cost and hassle of a lawsuit, if the property management firm files for bankruptcy, you may not be able to be compensated.

Don’t worry about this creating more work for you. Monitoring your renters insurance program for your rental properties, and your own insurance on the rental, is as easy as checking & reading your mail.

2. Make sure your rental agreement requires your tenant to have renters insurance, and make sure your tenant is aware of this requirement before they sign the lease or rental agreement.

You should discuss this matter with your property management firm or lawyer, to make sure their are no legal issues. If any of your rental units are rent-controlled, there may be an issue with requiring your tenants to purchase renters insurance.

Renters insurance is inexpensive, usually costing $10-$15 a month. If your tenant buys the renters insurance from their car insurance company, they may get a discount on their auto insurance, which will offset the cost of the renters insurance.

3. You or your property management firm should work with a local insurance agent, to help your tenant get renters insurance.

Some insurance agents will tell you all renters insurance policies are the same, but knowledgeable agents know different insurance company’s renters insurance policies differ in how contractual liability is covered.

For example, almost all (if not all) renters insurance cover a tenant’s legal liability if they are legally responsible for a fire damaging your building. But some insurance companies do no cover other causes of damage to your property, due to the negligence of the tenant. If the tenant has a water bed, or aquarium, or if the tenant accidentally lets his bathtub or toilet overflow, there may be no coverage under the tenant’s renters insurance. Some insurance companies do cover these events under their renters insurance, if the tenant is negligent. It will be to your benefit to work with an agent whom is aware of this advantage in coverage, and can educate your tenant, and offer renters insurance with the broadest liability possible.

4. Make sure you are listed as and interested party on the renters insurance policy, and you will be notified if the renters insurance policy lapses or cancels.

This is something most landlords and property management firms fail to do!

You need to make sure you are listed on the renters insurance policy, so a certificate of insurance is mailed to your address when the policy is issued, or if it cancels for any reason.

As mentioned in #1, don’t rely on your property management firm to handle this for you: make sure it is your name and mailing address as the certificate holder.

This is important, because if a tenant buys renters insurance, then lets the policy cancel for non-payment (like many tenants do), you will be notified by the insurance company about the cancellation.

You, your insurance agent (if your agent agrees to help you manage your renters insurance program), or property management firm can contact the tenant to get them to reinstate the renters insurance, or buy a new policy. You will be notified by mail of the reinstatement, or new renters insurance policy purchase, if you are listed as the certificate holder.

Ideally, you want to be listed as an Additional Insured on your tenant’s renters insurance, but it is very difficult to find an insurance company willing to do it, since doing this creates more risk for the insurance company.

Making sure your tenant has renters insurance is as easy as checking your mail and making sure you have the current renters insurance on file. Most insurance companies will not send you the annual renewal, but will notify you by mail if the policy is not renewed. You can contact the insurance company anytime to make sure the policy is active. Though contacting the insurance company after a claim won’t help you if the renters policy has canceled.

5. Require liability coverage on the renters insurance to be equal to the reconstruction cost of your rental building, or $500,000, whichever is less.

You may rent to low income people, if you have a 4-plex costing $600,000 to rebuild, you want to make sure your tenants have enough liability to rebuild the building if they are negligent and cause substantial damage to it.

Liability coverage is inexpensive, and it usually costs not more than $15 more a year to go from $300,000 to $500,000 liability. However, some insurance companies may be unwilling to go above $300,000 for liability coverage on their renters insurance policies. If the value of your building is more than $300,000, you want to require as much liability as possible, while allowing your tenant the freedom to choose their renters insurance company.

Informing your tenant THEY are legally responsible, even if they have no money, for the cost of any damage to the building not covered by their renters insurance, if they are negligent and cause a fire, may help them choose the insurance company willing to offer them the most liability.

6. Requiring your tenants to have renters insurance does not mean you need less insurance or coverage on your own insurance policy. Shop with a few agents to make sure you have the coverage you need at a reasonable price.

Insurance companies differ in how they insure rental properties, and what coverage they may offer you.

Some insurance companies allow you to have the broader coverage of a homeowners insurance policy, on a building with up to 4 units, if you live in one of them. Other insurance companies require you to purchase multiple policies in this same situation: a policy for the building, then a renters insurance policy for you.

Some insurance companies will insure your rentals on a business owners policy, with a million dollar liability coverage, and others won’t offer you that much coverage.

Having all your insurance with one company — car insurance, home insurance, rental property insurance — usually gets you multiple discounts, but the coverage available and price can vary greatly among insurance companies.

When you have rental property, your insurance needs are complex, so you should not buy insurance online, but shop with insurance agents knowledgeable about the insurance needs of landlords, and have the best products for your situation. This can be hard to find since many agents work with only one company, and even independent agents representing many companies, may not represent the insurance company with the best product for you.

Get insurance quotes from multiple insurance agents by clicking the link below. You may have a great agent now, but it is wise to get a second opinion from at least one other agent once a year, to make sure you are covered as you need to be, to avoid finding out you have inadequate coverage when you have a claim.

It is wise to shop your insurance once a year — even if you decide to stay with the agent you have now. Who knows? You may be able to get a lot more coverage AND save money.

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