Owning real estate can be a lucrative way to accumulate wealth over time. For those who own multiple properties, the potential for passive income from rent paid by tenants is great; however, having multiple tenants also brings new obligations, insurance requirements, and more. Owning multiple properties isn’t all that easy when you consider the responsibilities you have as a landlord and property owner – now factor in the impact of your tenants.
Agreeing to rent out a property can cause a handful of headaches, due mostly to the fact that you are entrusting that tenant to keep the home in good condition. While many renters do just that, there are circumstances that arise that can wreak havoc on your financial situation as a property owner with tenants. For these situations, requiring your tenants to have renters insurance may be a smart decision.
Renters insurance is made available to individuals or families who are renting a property. A typical renters insurance policy is relatively inexpensive, and it provides coverage for the tenants and their property inside the home. It is meant to provide some financial peace of mind should damage or theft take place. With renters insurance in mind, an interesting question comes to mind. Should renters insurance be a requirement for your tenants? Let’s explore that question now.
How Does Renters Insurance Protect Your Tenant?
Requiring tenants to get renters insurance offers some tangible benefits upfront. First, the best renters insurance coverage is designed to protect both the tenant and their possessions from financial loss due to damage to the property or theft. When property damage takes place, the tenant’s personal possession may be covered up to the policy limits. This means they can receive reimbursement for repairing or replacing belongings, including clothing, electronics, or furniture.
In addition to covering personal property loss, some renters insurance policies also offer liability protection to tenants. When liability coverage is in place, repairs for damage to someone else’s property or a guest’s medical bills may be coveredif the tenant is responsible for that loss. Some renters insurance policies also cover other expenses, such as hotel bills or food if the property rented is uninhabitable for a period of time. For a small cost, renters insurance offers these valuable benefits to tenants.
How Does Renters Insurance Protect Your Business?
In addition to protecting the tenant, renters insurance also offers advantages to you and your rental property business. Most importantly, renters insurance reduces your responsibility for loss of personal possessions or liability should something go wrong. The insurance coverage kicks in to help offset financial losses – not your business or your assets. Additionally, renters insurance may help reduce the potential for a lawsuit against you when tenants’ belongings are damaged due to issues with the property.
A renters insurance policy may also reduce the cost you pay out of pocket for any damaged caused by the tenant. For instance, if a renter damages the property accidentally, your homeowner’s insurance is likely to help cover the cost of repairs. However, you still have a deductible to pay. Renters insurance may cover that deductible if the tenant was responsible for the damage.
Are There Any Drawbacks?
The biggest drawback to requiring renters insurance for your tenants is the reality that it comes at a cost to them. However, the average cost of renters insurance is relatively low, coming in at under $16 per month - or $188 per year. Given the benefits renters insurance providers to both you and your tenants, it may be well worth the cost.
The other potential drawback of renters insurance has to do with the specifics of each policy. Some coverage options do not include all types or categories of personal possessions, meaning renters could still carry some of the financial burden if things go wrong. The same is true for you as the property owner. It is important that both renters and landlords review the renters insurance coverage to ensure it covers what is needed.
Should It Be Required?
Because entrusting property to tenants can carry some risk, offsetting that risk with renters insurance may be a good idea from a business perspective. It is legal to require this coverage as part of a lease agreement for tenants, and the majority of renters may want a policy to help protect their personal belongings. Even though landlord or property insurance protects the structure, renters need to know that they are covered for their own possessions if theft or damage takes place in the home.
Be sure to provide your potential and current tenants information on renters insurance and explain why it is a requirement if they ask. The coverage provided comes at a small additional cost each month, but the potential benefits provided may far outweigh the extra expense. For these reasons, renters insurance should be required for your tenants.
By Andrew from LendEDU – a consumer education website and personal finance resource & authority