Can a landlord require renters insurance? In most states, they can – although, we recommend you check with local and state laws before you add anything to your leases. The better question is: Why would you want to?
The answer to that is relatively simple too. While your landlord insurance safeguards your interests, making sure your tenant has renters insurance, also called an HO4 policy, adds another layer of protection. We’ve listed seven ways it benefits a landlord to require renters insurance.
1. Reducing Your Chances of Being Sued
Maybe one of the best reasons for landlords to require renters insurance is that it can reduce their chances of a lawsuit. Tenants who have their own coverage are less likely to start pointing fingers when things go awry – and that can mean fewer headaches for you.
2. Helping to Pay Additional Expenses in a Disaster
Imagine owning a rental property where some sort of disaster makes the place uninhabitable, like a fire or hurricane. Your landlord insurance may cover the damage to the building and even your lost rental income. But it seldom pays your tenants’ relocation and additional living expenses.
Renters insurance policies, however, usually have a loss of use provision that helps renters pay for temporary accommodations. Even if you’re not liable for those costs, tenants who have this coverage may be more likely to recover and return to your property quickly.
3. Covering Tenants’ Personal Property
Just like your tenants’ additional living expenses, your landlord insurance doesn’t cover your tenants’ personal property. So if their belongings are destroyed in a similar disaster, there’s a chance your tenant may sue you to replace them. This is less likely if you require renters insurance. Making coverage part of the rental agreement puts the responsibility on your tenant to have the right amount of coverage in place.
4. Being Pet Friendly
Allowing renters to have a cat or dog may make your property more attractive to potential tenants, but pets can cause liability issues, including dog bites and property damage. This is one reason so many home insurance policies have animal exclusions. If you do decide to allow pets, then you should require tenants to carry renters insurance that covers animal liability. Not requiring it could cause you to be dragged into a lawsuit.
5. Limiting Your Policy Claims
When your renters have insurance, you may find you have fewer claims to file on your landlord insurance. That can be a big benefit to you because multiple claims can impact your premium. You should note, however, that requiring renters to have insurance can’t eliminate all potential claims.
6. Finding Quality Tenants
One of the hardest jobs of a landlord is filling their rental properties with good tenants who pay their rent on time. Applicants who balk at the idea of carrying renters insurance may give you a heads-up about how financially responsible they are.
7. Lowering Your Deductible
Insurance companies sometimes offer incentives for behaviors that make insuring a property more attractive. For example, we have a renters policy incentive endorsement for landlords who require renters insurance. If a landlord has a claim and can provide proof that their tenant had insurance at least 14 days prior to filing, then we’ll reduce the landlord’s deductible by 50 percent or $750, whichever is lesser.
How Much Renters Insurance Should a Landlord Require?
How much renters insurance you require depends on several factors, but the most important of these is probably the value of your tenants’ personal belongings. Renters with $30,000 in property need at least that amount of coverage, plus around $100,000 in liability coverage. But every tenant is different, so you may want to discuss the specific coverage amount with each applicant before you add it into the lease.
Being a landlord isn’t easy, but it can be a good way for homeowners to make extra cash. Find out more in our article “15 Tips for First-Time Landlords.”