When you start renting out residential property, one of the first tasks to tackle is securing landlord insurance. In most cases, standard homeowners insurance won’t cover any damages incurred from renters, leaving you in a tricky spot if anything goes wrong.
Yet, relying solely on landlord insurance isn’t enough to cover everything. Between injuries inside the unit and residents’ personal property, landlord insurance leaves a lot of gaps in protection for your tenants and your business.
Let’s explore what landlord insurance covers, what it doesn’t, and why enforcing renters insurance is essential to bridge the gap.
Why Do You Need Landlord Insurance?
While landlord insurance isn’t always legally required, mortgage lenders often mandate it. Moreover, operating a rental property without proper insurance can leave you vulnerable to significant financial risks. In the event of a lawsuit or major property damage, you could be personally liable for costs that could potentially bankrupt you.
If you start renting out a residential property, landlord insurance typically takes the place of your homeowners policy, which doesn’t cover many commercial risks. For instance, landlord insurance typically includes more extensive liability coverage and covers loss of rental income if your property becomes uninhabitable.
Landlord Insurance vs. Renters Insurance
When it comes to protecting your property, it may be unclear why there’s no one-size-fits-all solution to mitigate risk completely. That’s why it’s important to understand the difference between landlord and renters insurance, including what each one covers.
| Coverage type | Landlord insurance | Renters insurance |
|---|---|---|
Dwelling | Covers physical damage to the structure of the inside and outside of the property | N/A |
Personal property | Covers landlord-owned belongings within the property, such as furniture included in the apartment | Covers tenant belongings in the event of theft, fire, or other covered perils |
Liability | Covers legal fees and damages for liability claims related common areas and property outside the occupied units | Covers legal fees, medical expenses, and damages from lawsuits in liability claims taking place inside the unit |
Loss of use | Covers lost income in the case that the property becomes unlivable or tenants are forced to evacuate | Also known as additional living expenses coverage (ALE); covers the cost of temporary accommodations and extra expenses if the rented property becomes uninhabitable |
Although landlord insurance generally covers damage to your physical building, it falls short in situations where your resident’s property is destroyed.
For instance, imagine a fire breaks out in your rental property due to faulty wiring. Your landlord insurance covers the structural damage and lost rental income while repairs are made. However, your tenant loses all their personal belongings in the fire. Without renters insurance, they might seek compensation from you, potentially leading to a costly legal battle.
Getting renters insurance doesn’t only protect your tenants from loss– it also provides an additional layer of protection for you as the property owner.
How to Enforce a Renters Insurance Requirement for Your Residents
Requiring renters insurance is a common practice among landlords, but implementing an efficient process involves a few key steps.
1. Add it to your lease
Include a clause in your lease agreement that requires tenants to maintain renters insurance throughout the entire term of their lease. This should contain key details of the mandate, including minimum liability limits, verification requirements, and potential consequences for non-compliance.
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INSURANCE. Except as required by state law, we do not maintain insurance to cover your personal property or personal injury. We are not responsible to any resident, guest, or occupant for damage or loss of personal property from (including but not limited to) fire, smoke, rain, flood, water and pipe leaks, hail, ice, snow, lightning, wind, explosions, earthquake, interruption of utilities, theft, hurricane, negligence of other residents, occupants, or invited/uninvited guests or vandalism unless due to owner’s omission, fault, negligence, or misconduct.
In addition, we urge all residents, and particularly those residing in coastal areas, areas near rivers, and areas prone to flooding, to obtain flood insurance. Renter’s insurance may not cover damage to your property due to flooding. A flood insurance resource which may be available includes the National Flood Insurance Program managed by the Federal Emergency Management Agency (FEMA).
2. Incorporate it into resident communications
To help your residents better understand your renters insurance requirement, you’ll also want to communicate it to them outside of the lease. If you already have a move-in email sequence for new residents, you can simply slot it in. In this communication, you can discuss the benefits of renters insurance, reiterate your building requirements, and review the verification process.
3. Set up verification and monitoring through CheckMy Resident
Setting a renters insurance requirement and communicating it to your tenants is only half the battle; you also have to follow through to ensure that coverage is in place if the unexpected happens.
Many leasing offices will require residents to provide proof of insurance in the form of a declaration page in order to demonstrate compliance. However, the practice leaves lots of room for error, from fraudulent documents to post-review policy cancellations.
CheckMy Resident is the only automated insurance verification process that lets you confirm your tenant’s coverage status in real time. You can also use it to set up ongoing monitoring to ensure that their insurance remains unchanged throughout the entire lease, eliminating the risk of coverage gaps.
Take the Next Step to Protect Your Rental
By combining your own landlord insurance with a well executed renters insurance program, you can ensure that both you and your tenants are adequately protected, creating a safer and more secure rental arrangement for everyone involved.
Ready to take the next step to reinforce your business protection? Learn how CheckMy Resident can help you build a fool-proof insurance verification process.
