Real Estate Investors Association of Greater Cincinnati

Renter’s Insurance – How Important is it, Exactly?


A topic that Professional Housing Providers seem to discuss on a regular basis is how to make sure their tenants have renters' insurance … and … make sure that the insurance stays active. 

Most of the conversations I have had seem to have the same discussion points:

  • Yes, the lease requires the tenant maintain renter’s insurance
  • No, we don’t police the tenants to make sure they have renter’s insurance
  • No, we really don’t know how to make sure the renter's insurance is in effect
  • No, we really don’t understand why renter’s insurance is a big deal 

In VERY simple terms, renter’s insurance can help you remove a claim from your insurance history and probably save you money on your insurance program. If your tenants are without renter’s insurance ANY incident now becomes YOUR (the Professional Housing Provider’s) problem/issue.

As an example: you own a 4 unit, 2 story building completely leased. A 2nd story tenant decides to take a bath and starts to fill the bathtub. In the process, they become distracted and eventually decide to nap while the tub is filling. They wake up 3 hours later and step into water on their floor. They rush to turn the water off but fail to notify you that there was an incident. 4 hours later, a downstairs tenant calls you to say they have water running down their walls. 15 minutes later, the other upstairs tenant calls to say they have water thru-out their apartment.

When you show up, there is water running out of the door, and everyone is upset and yelling. The upstairs tenant, where the issue started, says there was an issue with the tub, which cause the water to flood their apartment. As you start to investigate, the other 3 units have people hauling out wet clothes to get them washed and dried and are asking what you are paying them to get their clothes cleaned and dried. As the volume increases, you call your insurance agent to figure how to get a handle on the situation. 

The insurance agent’s first question: do the tenants have renter’s insurance? Your response: I don’t know. 

You speak to your tenants and all respond: yes, we DID have renter’s insurance, but we let it lapse.

Your insurance agent states this is now YOUR problem …. and …. you will be responsible for the policy deductible and all of the other issues that will result from the cleanup.

And that’s assuming that your insurance company will even cover this claim, as it was caused by negligence from one of your tenants. If the insurance adjuster determines the overflow was “malicious,” the claim could be denied. Some policies cover malicious damage; some do not. Ask your agent to verify what is a covered water loss and what is not, based on the terms of your policy.

Once the restoration company gets started, the tenants start to realize that they need to find a place to stay while their units are being dried and repaired. They are told they will be out of their units approximately 5 weeks. They then come to you for money for them to have a place to stay.

Unfortunately, the Professional Housing Provider policy does NOT provide monies for your tenants to find a new place to stay. The policy also does not provide monies to:

  • clean their belongs
  • replace the damaged electronic items that were on the floor
  • repair the furniture that has water damage
  • provide a down payment to move into a new apartment

IF your policy has a provision for loss of rents, it will protect your income while the building is being restored to a livable building and until your have the units leased again, presuming the original tenants don’t come back. If not, you’re stuck with that, too.

What your policy doesn’t cover is damages to your tenant’s personal property. If you’ve ever tried to explain that to a tenant, you know that they don’t care; they want you to pay for their damaged stuff. They may try to recover their losses through the courts, and while they have a low chance of success, that’s still time and money from you to defend the case. 

And the sad thing is, none of that is necessary: it was their lack of renters insurance was the cause of their loss. 

How do you avoid the above situation? Require and VERIFY that your tenants are following the lease and maintaining their renter's insurance. You, the Professional Housing Provider, needs to be listed as an “additional insured” on the renters insurance policy. You should also require at least $300,000 of liability insurance on the renter's policy. The policy should also have a notification period of 30 days or less for any lapse in the policy. You also need to personally call and verify the policy is in effect.

Yes, everyone understands that requiring renter’s insurance and continuously verifying can be a pain. We get it. Our suggestion: you, the Professional Housing Provider, handle the policy payments. You make sure that the policy is issued, as part of the lease itself. Your tenant signs the renter’s insurance application, and you collect the monthly payments with the rent and make the premiums part of the monthly payment that the tenant owes you. If they don’t make them, they’re in violation of the lease—and the lease should say that any payment that IS received goes first to any unpaid rents or late fees, any legal fees from an eviction filing, any utility payments you made that they were supposed to make, the renter’s insurance premium, and only THEN to the current month’s rent.

In the above situation, if the affected tenants had renter’s insurance, you, the Professional Housing Provider, would not have had a claim against your insurance. It would not exist on your insurance record. Your tenants would have had their personal belongs cleaned, repaired and /or replaced, at zero cost to you. The tenant that caused the claim would have had their policy pay for all of the damages and any deductibles that would go with their policy. 

Seems like a simple decision to me.

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