Finding a dependable renter who pays their rent on time, takes care of the property, and gets along with other tenants is harder and harder to find these days. Especially after COVID-19 hit.
Should a problem such as theft or water damage from a burst pipe occur, the last thing any landlord needs is an argument about who is at fault and, more importantly, who is going to pay for the damages.
Small claims court is one way to proceed, but this often costs a lot of money, takes a lot of time, and creates an expensive vacancy that you will have to fill.
A better way to handle the situation is proactively: give your tenants a simple education in renters insurance or, if you have younger tenants in school or have property in a high crime area, require the tenant carry renters insurance.
There is a common misconception among renters that anything and everything in a rental property is covered by the landlord. They think that because something happened on your property (and that you must have boatloads of money), any problems that occur under your rental roof is your problem and not theirs. What needs to be explained is that the rental property is considered a private residence and that everything within is just that: private. Because it is private, it is their responsibility and not yours.
If a fire breaks out in the apartment building, who will replace the damaged property? If someone slips and falls in a tenant’s kitchen, is the landlord liable or the renter? If a tenant’s dog bites a passerby, who will pay for the medical expenses and possible court fees? To avoid any possible confusion between you and your renters, a short tutorial in renters insurance may clear up what is your responsibility and what is theirs.
Understanding Renters Insurance
To better explain why your tenants should consider renters insurance, you’ll need to educate them about what can and cannot be covered with a policy. Renters insurance is a group of coverages which financially protect tenants from damages to property or personal items and from the liability that may arise from injuries on the premises.
Policies vary somewhat from insurer to insurer, but there are three coverages that are standard on most renters insurance companies before the add-ons begin:
1. Personal Property is everything owned by your renter which isn’t part of your physical property. This can range from furniture to electronics to jewelry and in some cases even pets. If items such as stoves, refrigerators, water heaters, etc. are owned by you but operated by your tenants, make sure these items are covered under your landlords insurance policy.
2. Personal Liability covers unintentional or accidental mishaps that occur to someone else or their belongings while in or on your renter’s property. This includes any injuries from slip and falls or even dog bites. This often, but not always, covers any medical expenses incurred because of injuries. Note that this coverage does NOT compensate the tenants themselves in the event of injury on the property.
3. Additional Living Expenses or ALE are expenses which occur when the rental space has become unlivable. Often invokes on account of fire or flooding, this coverage reimburses tenants for hotel or other alternate housing expenses when they need to relocate for a short time. This is frequently a disputed issue between landlords and tenants.
Renters Insurance Add-ons: Riders, Endorsements, and Floaters
Riders, endorsements, and floaters are the many nuances that can be added onto a policy to cover specific situations. Of course these additions come at a price, but savvy renters who ask about pay for these specialty coverages will come out ahead in the event of a disaster.
Riders or endorsements are add-ons which cover a slightly wider spectrum of personal belongings. For instance, a renter might have $10,000 worth of electronics, but the insurance company’s base policy may only cover $2,000 in electronics. In this case, it is suggested the tenant buy additional protection to cover the remaining items through a rider or endorsement.
A floater covers more specific items on the rental property. Jewelry, for example, is often covered for around $1000 per household. If a tenant owns particular pieces of jewelry which are a little pricier, such as a fine engagement ring or a Rolex watch, they should consider getting a floater to cover them.
What About Flooding?
Flood insurance is usually not included in a standard insurance policy and is not even offered by many carriers.
For both tenants and landlords, the availability and cost of this coverage is dependent on location. In standard insurance policies, though, flooding is what is known as an excluded peril–which means insurers won’t pay for it.
For example, say your rental property roof was compromised due to heavy winds and a storm followed shortly afterwards, flooding an upstairs apartment. Under some exclusions, insurance companies will argue that the flooding (rather than the high winds) caused the damage, making flooding the excluded peril and leaving you and your tenants out of luck.
As an alternative, the US government formed the National Flood Insurance Plan (NFIP), which you may want to offer your tenants if your property is in a high risk flood area.
However, flooding is different from water damage in that flooding is caused by natural elements (hurricane, storm, heavy spring thaw, etc.). A water damage add-on often covers problems like a burst pipe or other severe plumbing issues. Per usual, each plan is different and must be discussed with your insurance agent.
So… What is Covered?
While each insurance company is different, the items below are considered “common perils” which are covered by most of the renters insurance policies:
- Windstorm or hail
- Fire or lightning
- Weight of Ice, Snow, or Sleet
- Riot or civil commotion
- Accidental discharge or overflow of water or steam
- Vandalism or malicious mischief
- Volcanic eruption
- Falling object
- Sudden & accidental tearing, cracking, burning or building
- Sudden & accidental damage from artificially generated electrical current
It cannot be stressed enough that anyone considering renters insurance should specifically question their agent on every one of the above coverages and scrutinize their contract prior to signing. As with every insurance plan, it is up to the insured to make sure they are covered.
A Look at 11 Popular Home Rental Insurance Companies
|Renters Insurance Company (no particular order)||Pros||Cons||Average Price Point*||J.D. Power Rating|
|1. Lemonade||User-friendly online system, affordability||Only available in 20 states.||Starts at $5/month*||N/A|
|2. Progressive||Online competitive price shopping||When filing a claim, you may have to go through your third-party underwriter rather than report directly through Progressive||Starts at $13/month*||3/5|
|3. Amica||Customizable insurance coverage||Standard coverage doesn’t typically cover much||Starts at $4/week*||5/5|
|4. State Farm||Availability in every U.S. State||Limited home policy deductibles||Starts at $12/month*||4/5|
|5. Liberty Mutual||Plenty of options for discounts & savings, great mobile app||Relatively low satisfaction ratings, tough to find local agents||Starts at $12/month*||2/5|
|6. Erie||Outstanding customer satisfaction||Lack of a mobile app to manage the policy||Starts at $15/month*||3/5|
|7. Metlife||Availability to insure expensive luxury items that wouldn’t normally be covered under your policy||Not many money-saving opportunities||Starts at $10/month*||N/A|
|8. Allstate||Claim-free policy discounts||Mid-low satisfaction rating||Starts at $15/month*||2/5|
|9. USAA||Multiple policy discounts, replacement cost coverage (no depreciated valuations)||Only available for U.S. Military Service Members, Veterans & their families||Starts at $10/month*||5/5|
|10. Travelers||Many coverage & prices options||Mid-low satisfaction rating||Starts at $17/month*||2/5|
|11. American Family||Wide range of discounts||Not available in every state||N/A||5/5|
Renters Insurance: The Takeaway
A short education on renters insurance will benefit both you and your tenants if a problem arises. Fires, natural disasters, water damage, and other calamities are costly and create stress for both landlords and tenants. Offering solutions before these problems arise will protect everyone involved and keep your renters happy. If you have a website, provide your tenants with resources so they can educate themselves. Also provide them with reading materials when signing their lease or possibly in a monthly newsletter. Any way to openly communicate their responsibilities and yours will end in a more harmonious landlord/tenant relationship.