Here are some of the most common mistakes landlords, property managers and other real estate professionals make when it comes to renters insurance.
Mistake #1: Thinking Renters Insurance Only Protects the Renter
True, renters insurance protects the renter and the renters’ belongings. If the renter has a stereo stolen, renters insurance will cover it up to the policy limit and minus the deductible. That’s not the landlord or property manager’s business—most renters insurance claims don’t involve the landlord at all.
So why should property owners care? Because renters insurance is an important part of your risk management and mitigation strategy. Like homeowners insurance, most rental insurance policies include some personal liability insurance on top of the basic property protections.
Suppose the tenant accidentally starts a kitchen fire. That fire can easily cause $10,000 to $50,000 in damage. It may even force the evacuation of adjacent units. Few renters have the cash on hand to make you whole. Sure, you’ve got landlord insurance—but look at your deductible on that policy. If your landlord insurance deductible is $10,000 or $50,000 (not unusual for apartment management companies), you can sue the tenant that caused the fire—but your chances of actually collecting anything significant are slim. You will almost certainly have to eat the cost. If the tenant has renters insurance, you at least have some assurance that there are sufficient assets on the table to make up the difference.
Mistake #2: Failing to Require Renters Insurance in Your Leases
If you decide to require renters insurance, put it in your lease. That way, if the renter lapses on the policy, you have some recourse to evict. Of course, you don’t want to lose a tenant and have an empty unit; but when push comes to shove, people aren’t going to move out over a $15 to $20 per month issue. If they do, they were probably looking to leave anyway, and renters insurance issue was covering up another issue. By making renters insurance a requirement on the lease, you can move these folks along when you need to.
Mistake #3: Thinking Renters Insurance is Too Expensive for Your Market
Some renters may protest the cost; but renters insurance for most 1-2 bedroom rental dwellings is $30 or less per month. If that’s a genuine hardship for them, what does that tell you about their capacity to pay your monthly rent in the first place?
Mistake #4: Failing to Anticipate Potential Causes of Liability
There’s a lot more to renters insurance than protecting landlords against kitchen fire damages. Suppose a tenant is sued for damages arising out of operating an unlicensed daycare? Suppose he or she is accused of assault? What if the tenant’s dog bites someone? If there’s a lawsuit, and the tenant doesn’t have the resources to pay a judgment or settlement, and there are still unpaid medical bills, the injured party’s lawyers may go after you as the closest perceived ‘deep pocket’ in sight.
Mistake #5: Letting College Students Skip Renters Insurance
True, college students don’t have a lot of money, so you may get some resistance from this market. And they typically don’t have a lot of stuff to insure: a laptop, smartphone, a gaming system, maybe a musical instrument. But some carriers allow parents of full-time college students to keep limited coverage on their college-aged children who live away from home. These micro-policies or riders tend to be lower-deductible policies designed to keep things relevant to the college student; but they still provide you, the landlord, with important protection against liability and damage that they may cause. Which is a good thing, because most of these kids are pretty inexperienced chefs.
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Mistake #6: Underestimating Potential Damages
Continuing with the example of a kitchen fire: According to reporting from Homeadvisor.com, the average reported cost of repairing fire and smoke damage after a kitchen fire was $4,086. Most of the owners wound up spending between $2,240 and $6,040, with some spending upwards of $12,000.
If you have custom installations or an otherwise have a premium kitchen, your costs to repair may run $50,000 or more for a significant fire. You may well have water damage throughout the dwelling if the sprinklers go off or the fire department responds. You’ll have to pay these costs yourself, up to your landlord or commercial insurance deductible.
Mistake #7: Failing to Ask About Discounts
Some landlord insurance carriers may offer a discount if every tenant carries renters insurance. Why? Because they know that if a tenant causes damage to your property, they can recover at least some of the cost of paying your claim by going after the tenant’s rental insurance carrier.
Mistake #8: Failing to Consider Mold Damage
Renters insurance may make it much easier to recover the cost of repairing or mitigating mold damage, if the renter is at fault—up to the point where a reasonable renter should take action to fix the issue. Some carriers exclude mold from the list of covered perils (except where it arises from covered water damage), but other renters insurance policies will place a cap of around $5,000 on benefits for mold remediation. If your property is in an area that has a lot of mold, it’s a good idea to encourage—or require—renters insurance that includes at least some protection against mold buildup if it’s available in your area (the renter may have to buy a separate mold endorsement or rider). $5,000 may not seem like a lot, but it will certainly help with a chunk of the deductible if extensive mold cleanup is needed to make the property livable again.
Mistake #9: Thinking You’re the Only One Who Requires Renters Insurance
Things have changed a lot in the last decade. According to the National Multi-Housing Council’s Apartment Cost Risk Survey, more than 84 percent of large apartment companies now require renters’ insurance. In 2004, only 24 percent did so. If a tenant really wants to avoid owning renter’s insurance, it’s going to be tougher for them to find a place to live—and those aren’t the tenants you want, anyway.
Mistake #10: Talking Too Much About Renters Insurance to Tenants
A bit of general information is fine, but few leasing office workers also have insurance licenses, much less appointments to sell anything. Train your people to stick to the basics in the brochure and refer coverage questions to the carrier.
If you mandate renters insurance, what are some of the lessons you’ve learned about implementing the requirement?Read more on Legal Considerations