For residential property managers, enforcing a good policy for ensuring your tenants carry renters insurance is one of the most crucial tools in protecting your investment against unforeseen damages and liabilities.
However, asking your tenants to confirm they have coverage isn’t enough. Many landlords and property managers only require proof of insurance from their residents to ensure their policy is sufficient to cover any damages in the event of a claim. In this blog, we’ll talk about what proof of renters insurance looks like, why it might not be sufficient to protect your business, and how to verify insurance the right way.
What Is Proof of Renters Insurance?
Proof of renters insurance is any confirmation provided by tenants to their landlords or property managers that verifies that they’re covered by a qualifying policy as required by their lease. It’s up to the landlord to determine how they want to collect this proof. While a select few require a phone call directly from the insurance company, most accept a written document, or even just a verbal confirmation from the tenant.
Regardless of the method used, it’s important that proof of renters insurance confirms that insurance is not only in place, but that it meets the minimum coverages you need to avoid issues. Most landlords require a policy that includes three types of coverage:
- Personal property coverage: Protects tenant belongings from theft, fire, or other covered perils. This coverage typically includes furniture, electronics, clothing, and more, ensuring financial security by replacing or reimbursing items damaged or lost. Requiring this coverage helps resolve any disputes between the landlord or property management and the resident in the event of a loss.
- Liability coverage: Shields tenants financially in case of injury or property damage on rented premises, covering legal fees, medical expenses, and damages from lawsuits. This protection ensures liability doesn’t fall to the landlord or property management in the event of an incident.
- Additional living expenses coverage: Provides financial support for temporary accommodations and extra expenses if the rented property becomes uninhabitable due to covered events like fire or natural disasters. If this coverage isn’t in place, the landlord or property management could be on the hook for funding accommodations in the event of catastrophe.
To fully protect yourself from legal liabilities, you’ll want to set a minimum coverage for your renter’s policy. Many landlords require liability coverage of $100,000 or $300,000.
Property coverage requirements are often more flexible, but your tenant should get enough to protect the value of their personal belongings, which falls around $20,000 for the average renter.
Where Only Collecting Proof Falls Short
When requesting proof of renters insurance in the form of a physical paper, a digital document, or even a phone call, you’re leaving yourself open to significant risks. These forms of “proof” are not the same as verification. Especially with today’s technology, documents and phone calls can be forged convincingly by practically anyone with a computer.
Even if you go the extra step to call your tenant’s insurance carrier to confirm their policy details, they can still cancel shortly after. In fact, data shows that 45% of residents cancel their policies before the end of their lease.
Furthermore, 19.5% of renters policies are canceled within the first 180 days of issuance. That means that for nearly ⅕ of tenants, any claims that arise after the first six months after their lease begins will need to be paid out of pocket. This may end up coming back to you in the form of legal action and other headaches, even if you’re not responsible for the damages.
Additional Interest: A Better (but Messier) Alternative
More cautious landlords may try to avoid the issue of forgery or early cancellation by having their tenants designated them as an additional interest in their policy. Also known as an interested party or third-party designee, this allows you to get notified if the tenant cancels their insurance or if their policy lapses.
Because you’re receiving communications directly from the carrier, this addresses some of the concerns around fake policies. It also might deter your residents from canceling prematurely since they know that it’ll eventually get back to you.
However, there are still a few problems with this method. Especially for larger landlords and property managers, getting added to notifications on policy cancellations for every unit is not scalable. The time it takes to read through hundreds of policy updates quickly adds up, and it becomes easy to miss an important memo– let alone needing to reach out to the tenant and fix the problem.
Not to mention, many notifications may not even reach you until 30-60 days after the cancellation, once the insurance company processes the paperwork to send out by mail. When you do receive it, so begins the back and forth with your tenant to reinstate their coverage, which you have to verify all over again. Through all of this, your resident is left unprotected, opening your business up to risks.
Additionally, additional insureds are only required to be notified if a policy is canceled, not if it’s altered. Therefore, if coverages are reduced below the agreed upon thresholds, notice may never be sent out of the change.
How to Verify Your Renters’ Insurance (the Right Way)
An inactive insurance policy is just as good as no insurance at all. That’s why more than anything, you need to make sure that your residents’ insurance is real and in force. That means going beyond the traditional “proof of insurance” route and conducting insurance verification.
CheckMy Resident is the only automated insurance verification process that provides real-time transparency, with the option to check that coverage remains unchanged on a monthly basis with no work needed after the quick and easy set up.
To get started, landlords and property management can simply send residents a verification link through which they can connect with their insurance carrier on their own device. CheckMy Resident’s AI-driven adequacy engine compares their coverage against requirements and instantly verifies whether the policy is active, accurate, and adequate. If it’s not, embedded insurance options help them buy affordable and easy-to-purchase coverage on the spot.
Because CheckMy Resident’s digital solution verifies the policy details directly from the carrier, property management and landlords can rest assured knowing they’re getting the most up-to-date information– without making a 15-minute phone call.
Protecting Your Investment with Insurance Monitoring
Ready to improve your insurance verification process and ensure year-round protection with continuous monitoring? Get in touch with the team at Modives to learn more.