Among real estate investors and landlords, risk reduction is a significant challenge that must be faced. You have multiple options for protecting your investment, but in terms of your tenants, requiring everyone to carry renters’ insurance is one of the smartest moves you can make.
What is Renters’ Insurance?
Renters’ insurance is protection that renters can purchase in the form of an insurance policy that safeguards them financially as well as their possessions against theft or damage. It also provides a certain degree of protection to landlords, which makes it a mutually beneficial policy.
Although some people are instantly turned off by the concept of “insurance,” the reality is that renters’ insurance is extremely cheap … especially here in Houston.
“Texas renters insurance is pretty inexpensive. The average is around fifteen dollars a month for $10,000 of personal property coverage and $100,000 of liability,” Effective Coverage explains. “If you need more coverage than that, you might be looking at twenty dollars a month. Basically, it is the cost of having a pizza delivered once.”
From a landlord’s perspective, cost isn’t even an issue. You’ll be requiring your tenants to pay for it. But it’s nice to know it’s affordable for tenants and won’t strain them financially.
What Does Renters’ Insurance Cover?
The purpose of renters’ insurance is to cover the personal property of your tenants. A typical comprehensive policy will cover the cost of replacing any personal belongings (such as furniture, electronics, clothing, jewelry, and appliances) if they’re stolen or damaged by any of the following mishaps:
- Fire and lightning
- Windstorm and hail
- Damage by aircraft
- Damage by vehicle
- Smoke damage
- Falling objects
- Volcanic eruption
- Water damage
- Freezing pipes
- Short-circuit damage to electronic devices
- Weight of snow, ice, or sleet
As an added benefit for tenants, renters’ insurance will even cover property when it’s not inside the home. (For example, if a laptop is stolen while the renter is at Starbucks, it’s still covered by the policy.)
Renters’ insurance also covers personal liability and medical bills. In other words, if a tenant’s dog bites a visitor, the incident would theoretically be covered under the policy.
In addition, renters’ insurance provides coverage for temporary living expenses in the unfortunate event that the property is no longer inhabitable. It reimburses hotel bills, food (if it’s in excess of what the renter would normally pay), and other basic expenses.
Most important, at least from your perspective, renters’ insurance typically pays for the landlord/property owner’s property insurance deductible in cases where the property suffers significant damage. For example, if your tenant floods the kitchen in your apartment and it requires $10,000 for repairs, a renters’ insurance policy will pay for the deductible on your policy (which could save you hundreds or even thousands).
What Does Renters’ Insurance Not Cover?
Despite all that renters’ insurance does to reduce risk, it’s not a bulletproof solution. Certain situations aren’t covered under the typical policy. Examples include:
- Certain natural disasters. Typically, you won’t get any satisfaction for damage from flooding, earthquakes, or sinkholes. If your rental property is located in a flood zone or near a fault line, you might want to encourage your tenants to obtain additional coverage for such disasters.
- For the most part, you’ll have a hard time finding a renters’ insurance policy that covers damage caused by rodents, pests, bugs, and other vermin.
- Unless explicitly noted, a renters’ insurance policy will cap its payout on single items. This means items of high value — such as expensive jewelry, antiques, rare memorabilia, and family heirlooms — may fetch only a fraction of their worth. Additional policies can be purchased to cover the rest.
- Renters’ insurance will normally cover items that are stolen out of a renter’s vehicle, but not the vehicle itself. That would fall under an auto insurance policy.
For the small cost, renters’ insurance offers a lot of protection. Just make sure you and your tenants are clear about what is and isn’t covered prior to taking out a policy.
Tips for Requiring Renters’ Insurance
If you’re a landlord and property owner, renters’ insurance offers an array of protections. It mitigates the threat of a lawsuit (should damage occur to a renter’s belongings), limits your responsibility for replacement of items, covers your property insurance deductible, weeds out bad tenants, and generally offers peace of mind.
If you’re going to require renters’ insurance — and we recommend it — you need to make it as easy on your tenants as possible. If you have lots of renters spread across multiple properties, you might be able to negotiate a lower price on their behalf by pooling the policies with one insurance provider.
Sometimes, tenants would prefer to use their own provider and simply tack on a renters’ insurance clause to an existing bundled policy. This is fine, but don’t take your tenants’ word for it: Just because they showed you proof of renters’ insurance when they signed the lease agreement, that doesn’t meant the policy will still be valid months or years later.
“For best results and continued peace of mind, have your tenant show you proof of insurance annually — typically as a requirement for renewal,” landlord Jane Meggitt suggests. “If renters’ insurance is a mandated part of the lease, the tenant’s canceling or allowing the policy to lapse is grounds for termination.”
Renters’ insurance shouldn’t become a point of contention, but you need to give it suitable attention. Chances are, it’ll never have to be used. But there’s always the risk and — if you’re in the industry long enough — it may be necessary someday.
Green Residential: Houston Property Management
At Green Residential, it’s our mission to alleviate some of the risks and burdens of being a landlord and property owner. If you’re interested in maximizing your protection, increasing efficiency, and putting your rental properties on auto pilot, we’d love to help.
We’ve been in the business for more than 30 years and would welcome the opportunity to partner with you. Contact us today for a free Houston rental property evaluation!