Renters insurance: why leases should require tenants to have it

Many renters neglect insuring furnishings, electronics, jewelry, and special collections, like stamps or baseball cards. They think a renters insurance policy is needed only when buying a home, or that the building owner or manager’s insurance covers the contents of all the building’s units too.

Unfortunately, this not the case. Natural disasters, fires, and theft occur whether an apartment or house is owned or leased, large or small, urban or suburban, a truth neither tenants nor property managers can’t afford to ignore.

So exactly what does renters insurance cover? Should you require renters insurance for all your tenants? And what are the benefits for you, as property manager or owner?

For the answers to these and other key questions, we turned to insurance expert Greg Raab, Director of Operations with Adjusters International Inc., one of the largest public adjusters and disaster recovery services based in Utica, New York.

Greg Raab, Director of Operations with Adjusters International Inc.

Greg, how important is it for property management and building owners to require tenants to buy renters insurance?

It’s extremely important. Management wants tenants to be able to recover financially so they can remain as tenants. But the main reason is for the liability coverage included in the policy. For example, if someone has a fire in their unit, doesn’t have coverage and is at fault, the manager/owner would have to go after the tenant (for compensation). It provides tenants an important safety net.

Can management require renters insurance as part of the lease, and for a certain amount?

Yes, and the owner or manager can set a minimum.

What is a recommended minimum? And how do renters calculate what they should insure items like household furnishings, electronics, and jewelry?

It really is a basic estimate of belongings, and there’s no rule regarding backup information required but what a tenant agrees to with the (insurance) carrier. Typically, most renters don’t take out any coverage or certainly enough. I suggest they should have a minimum of $50,000 since the value of possessions adds up quickly. Too many have only $15,000.

What do tenants need as proof — original receipts, updated appraisals, video recordings, or photographs?

None of those, though that proof is fantastic to have in the event of making a claim. It will make the claims process go so much faster — and easier.

What type of coverage is better, replacement or actual cost value?

This is a no-brainer: replacement cost since the object of insurance is to replace possessions so tenants — or owners — can make a claim and purchase that sofa again, for example. If they bought it for $1,000 five years ago and it’s now going to cost $1,500, that’s what they’d get.

But with actual cost value, the purchase price would be depreciated because of use and they’d get much less — and not get the same sofa or be out of pocket for the difference.

Should renters also have special riders? And what should they be used for?

I recommend them for higher end jewelry and antiques — maybe anything valued at $3,000 and up. It should be for anything they value and couldn’t afford to replace if stolen or burned in a fire. Riders aren’t inexpensive but a renter should talk to their agent or broker and they might be eligible for a package.

Here’s another caveat: many apartment buildings have a basement storage unit for tenants, and many renters forget to insure what they store there if there’s a sewer backup or sump pump failure. They should consider purchasing some type of extra coverage or endorsement for protecting what’s not covered in their policy.

What else should be covered separately or as part of their renters insurance policy — like flood, earthquake, or fire?

Flood is recommended based on where the building is — if in a flood zone; earthquakes may be a waste of money for many unless near a fault line. And fire is covered by most policies.

If something happens to their home, does insurance cover living expenses for renters if they have to go elsewhere for a period?

Most renters’ policies do cover but the dollar amount is fairly small in terms of the time frame and dollars. Again, renters should talk to their agent or broker rather than count on the building owner or manager’s good will.

How should renters select a carrier for insurance rentals since there may be a spread between the costs and what’s covered?

It’s typical due diligence. Look at the carrier’s A.M. Best rating, get personal recommendations, look for industry designations. Also, consider whether they want a broker or agent.  I recommend a broker who can shop a wider source of policies since most agents deal with one carrier.

Finally, they should interview the person face-to-face or carefully over the phone to be sure they are interested and the chemistry is right.

Are there deductions for burglar alarms, sprinkler systems, fire extinguishers, dead bolts, or anything else?

Usually there are discounts for bundling. Some might even get their renter’s insurance free because of car and health insurance or these protective devices.

How often are premiums raised?

They are typically reviewed annually but don’t go up often, or only minimally. An exception could be if they make a lot of nuisance claims. They could even see their policy cancelled.

When deciding on the monthly premium, is it smarter to have a higher payment and lower deductible or vice versa?

That should be based on a person’s risk tolerance. I typically suggest renters lower their monthly premium and increase their deductible because the concept of insurance is to cover for catastrophic events. They’re less likely to put in for a small amount.

What else should renters consider or know before they move in?

Read their lease carefully. Some contain requirements so the levels are appropriate according to what owners or management desires. They might even want a second opinion on how much to have. Advise them to ask friends, family, and neighbors