Why Do Landlords Require Renters Insurance?

Although renters insurance protects tenants in many ways for a very affordable price, many tenants don’t think they need to purchase coverage. The most common trains of thought are that they don’t think they’ll need it, they don’t want to pay an extra $10 to $15 per month for it or — the most common misconception — they think landlord insurance also protects them.

That’s why, as a landlord, it’s your duty to require renters insurance for the tenants in your property whenever you can. It not only protects your tenant’s belongings, but it can also have a profound place in benefiting you as well.

Yes, landlords can require their tenants to purchase renters insurance via an addendum in the lease agreement in every state except Oklahoma, which passed a law that prohibits such requirements. Landlords can also specify a minimum amount of coverage their tenants must carry, although it can be capped in certain circumstances in Oregon and rent-controlled cities like New York and San Francisco.

The main purpose of requiring renters insurance as a landlord is to look out for the better benefit of your tenants, guiding them to protect their belongings and financial wellbeing without them having to bear the brunt of financial restitution should a peril destroy their belongings.

The secondary nature of this requirement is to look out for your own financial wellbeing, avoiding potential liability claims and lawsuits if a peril that wasn’t their fault damages or destroys their belongings.

Contrary to popular belief among tenants throughout the country, landlord insurance doesn’t protect your tenant’s belongings. But requiring your renters to maintain adequate renters insurance coverage through the life of their lease can.

If a covered peril, such as a house fire, rips through and destroys your tenant’s belongings, they could file a claim with their policy instead of trying to come after you. While landlord insurance would deny a claim for coverage of your tenant’s belongings, they may have grounds to sue you to recoup the cost of their belongings depending on the nature of the peril.

If they had renters insurance, these worries would be nullified because filing a claim with their insurer would be cheaper, quicker and less of a hassle. After all, that’s what insurance is there for.

If that same house fire from before creates so much damage that your tenant has to temporarily move out, your landlord policy would likely reimburse you for the amount of money they paid you each month as rental reimbursement coverage.

But, without renters insurance, your tenant would be in a tight spot, having to find a new place to live at the drop of a dime during extremely trying times. However, with renters insurance, they’d be able to tap into the additional living expenses portion of their policy and get reimbursed for a hotel room or rental property of equivalent value while their old one is being repaired.

For the sake of consistency and clarity, we’ll utilize the house fire example again. This time, we’ll get more specific and say the house fire was caused by a faulty electrical wiring job, outdated appliances that finally bit the dust and blew up or something else that was in no way, shape or form the fault of the tenant.

While you may also not be liable for the fire, that doesn’t stop your tenant from believing they were wronged and allowing the court of law to gauge whether you’re financially responsible for replacing their belongings. A simple renters insurance policy would nearly negate all chances of being sued because filing a claim is much easier, quicker and effective than spending months in a legal battle.

Since insurance is somewhat of a confidential matter and is kept on a need-to-know basis when filing claims, the only two ways to get proof of renters insurance from your tenant are to have them show you the policy to prove that it’s in place or to be added onto their policy as an additional interest.

Although it might sound a bit intrusive having your tenant add you to their policy as an additional interest, it’s the only way to truly know if they’re up to date on their policy. Proof of insurance in the form of a policy breakdown may not be good because they can cancel the policy after they show you proof of purchase, ultimately nullifying the benefits of renters insurance.