Renter’s Insurance: Lease Agreement Requirement or Property Management Folly?
There are many tenants who are unaware that having adequate insurance coverage is their responsibility, not their landlords. They have the mistaken impression that part of the property management repertoire is carrying insurance to protect their personal belongings from being damaged or stolen from their apartment.
Nothing could be further from the truth. Homeowners insurance only covers non-negligent damage to the building, and the loss of the landlords personal property. If a tenant wants to safeguard their belongings, they need to purchase renters insurance.
Kip Diggs of the Corporate Public Affairs Department at State Farm Insurance says that not only does renters insurance provide contents coverage, it also offers liability coverage for the insured should they be responsible for damaging the property because of negligent behavior. In addition, it covers the tenant should a guest be hurt while in their apartment.
But the liability coverage doesnt stop there. It includes medical payments coverage which provides money for immediate medical expenses if the tenants injured guest requires medical help.
The amount the insurance company offers in payment of a claim depends upon whether or not it is an “actual cash value” policy or “replacement cost coverage” policy. Actual cash value coverage will pay only what the property is worth at the time it needs to be replaced less the policy deductible. Replacement cost coverage pays the insured what it really costs to replace the lost or stolen items less the deductible. This option is the more expensive of the two.
Although its easy to see why tenants need renters insurance, from a property management perspective, it isnt as obvious what the benefits are. According to Kip, even though your tenant has insurance coverage, it doesnt affect the amount of homeowners insurance you need to carry to be sure your property is fully protected.
In fact, even if the tenant has renters insurance, it doesnt remove landlord liability in all instances, Kip explained. The landlord is still responsible for maintaining common areas, like parking lots, stairwells and sidewalks. They are also liable for accidents and non-negligent damage that occur in these areas. The renter is only responsible for the areas under their control.
So why would someone involved in property management consider making renters insurance a requirement in their lease agreement? It has to do with economics. Paying for property damage resulting from a tenants negligent behavior can get pricey. If your tenant doesnt have coverage, you may have to resort to either raising the rents of other tenants, and risk losing them; or you can put in a claim against your homeowners insurance, with the expectation of higher premiums.
However, if your tenant has renters insurance, it opens the door to a third option that clearly out paces the other two because it takes the burden off of you to find repair money. It goes without saying that a cardinal rule of effective property management includes continued maintenance of the property regardless of what it costs. Renters insurance allows the landlord to obey that rule without any undue hassle.
About the Author: Brian is a property management specialist and real estate writer, who contributes to online resources such as EZ Landlord Forms, a provider of lease agreement contracts, online property management software, and other resources for landlords and property management companies.
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