Renters’ Insurance: Should You Require It?
Monday, February 23rd, 2015
By: Steve Goldman, CCIM
Two years ago, there was a fire in the apartment building where my dad lives. In the entire 4-building complex, he was the only tenant carrying renters insurance. As a result, his hotel stay and apartment cleanup were covered, while his fellow tenants — and his landlord — got stuck with the bill for tenant relocation, smoke and water damage, and rebuilding the burned-out units.
The landlord had “BI” (business interruption) coverage, which paid the landlord for the loss of income until the units could be rent-ready. But since the tenants (other than my dad) did not have coverage, these tenants were stuck with losses that were not in their personal budgets. This led to a sharp increase in turnover that year. This reduction in landlord income was not covered by insurance. If tenants had been required to carry renters insurance, it is likely that the turnover increase would not have occurred and the landlord would have been made more money that year.
The National Apartment Association notes that, while there is a strong statistical relationship between resident quality and resident-caused fire and theft claims, there isn’t the same statistical relationship between tenant quality and water damage. In other words, claims happen. Regardless of property class or damage type, sooner or later, a repair will be required.
The fact is, when tenants don’t carry renters insurance, it costs YOU. Maybe you haven’t experienced an uncommon incident, like a fire, but what about the smaller, more frequent claims? An overflowing tub, cigarette-burned countertops and even ruined carpet add up. These are usually not found until an apartment is vacated, and then they’re just chalked up to the cost of doing business. But they represent a significant bottom-line cost that affects your income stream.
At this time, states can’t legally require renters to carry insurance, but more and more insurance companies are asking their landlords to make it a requirement.
Because it costs your tenants, many believe they can’t afford — or don’t want to pay for — the extra expense. In the interest of good tenant relations, here are some talking points to help you explain why renters insurance is a good idea:
- The lowered liability could mean fewer, or lower, rent increases
- Landlord insurance covers the buildings, but not the tenants’ belongings
- Tenants don’t have complete control of the building (a neighbor starts a fire or buzzes in a thief, for example)
- Insurance is easier to budget for and usually costs less than a claim
Many insurance companies offer renters insurance for $15-30/month, and have mobile sites that make signing up for and managing an account easy and quick. There’s no downside to having it — so why wouldn’t you require it?
Do you require your tenants to keep renters insurance? Why or why not?