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Helping Tenants Understand The Benefits of Having Renter’s Insurance

This is a guest article by Bryan from Gajizmo.com.  If you are interested in contributing to Debt RoundUp, please follow our guidelines.  This is a long post folks, so sit back and enjoy.

rental insurance riskOnly a third of all tenants have some kind of insurance to protect themselves from calamity in case their possessions go up in smoke, they’re flooded out when it rains, their children burn down the house while playing with matches, or they are a victim of burglary. Your homeowners’ policy would pay to repair or replace the building if something was to happen, but your policy would not cover the tenant’s possessions nor the tenant’s liability if they were found to have caused damage to the property.

These are some of the important questions and concerns you should raise with your tenants when helping them think about renter’s insurance. Like any other insurance policy, renter’s coverage protects your tenants (and indirectly you, as a landlord) from catastrophes that are statistically unlikely to occur, but happen nonetheless when you are least prepared for them. Whether you are a tenant or a landlord, consider these points when educating yourself on the benefits of renter’s insurance.

Why do so few tenants purchase renters insurance?

  • They erroneously believe that their landlord maintains property insurance that covers them and their belongings as well.
  • They may have never given the idea a thought because nobody has ever made them aware of renters insurance or the benefits.
  • They think they can’t afford it or would prefer to save the annual couple hundred dollars it likely costs.
  • They think their assets are too insignificant to be covered.
  • They’d rather gamble that the premiums which they would pay exceed whatever benefits they would receive.

Why should you, as a landlord, be concerned about your tenants buying renter’s insurance?

  • You should show a positive, caring attitude toward your tenants whenever you can. Keeping your tenants financially stable and secure is directly beneficial to your interests.
  • Tenants who have insurance are less likely to sue their landlords after a tragedy.
  • Tenants who have insurance don’t have to turn to you for compensation. They turn to their own insurance company for reimbursement; however, it doesn’t always work out that way.
  • In the case of theft, the insurance company will pay out on a claim and your tenants will be made whole, instead of trying to blame you for providing an unsafe living facility.

What does a renter’s policy cover?

  • Some offer fire coverage only, while others offer general coverage, including fire, earthquake, and flood coverage.
  • It may cover a tenant’s personal goods which are damaged or stolen on your premises.
  • It may cover losses to their goods when they are off the premises, such as gold clubs or a camera stolen out of their locked car.
  • It may cover them in case someone holds them up, forges their checks, or steals their credit cards.
  • It may cover personal liability in case they are negligent as tenants and cause damage to your property.
  • It may cover personal liability for non-auto bodily injury claims brought by others, which will be paid out by their renter’s insurance company versus your homeowner’s or rental property policy.

Where can they buy a renter’s policy?

  • Almost all the big general insurance companies sell it – State Farm, Progressive, Allstate, Safeco, Farmers, etc.
  • Tenants might start by asking the company which provides their car and home insurance policies. Always important to compare renter’s insurance quotes before purchasing a policy since the industry is very competitive and carriers will always try to undercut each other to get your business.

How much does it cost?

  • Rates vary by regions. Some companies have different rates for every region in a single state.
  • Typically, a renter’s policy will cost around $25 per month for $25,000 worth of coverage and a $250 deductible. Personal liability on such a policy is $300,000.
  • Policies which offer minimal coverage cost as little as $100 per year.
  • If you think about it, this is a very small price to pay relative to litigation costs, medical bills resulting from injury, and/or the cost of replacing your valuables.

Can you pay for it in installments?

  • Most providers offer a variety of payment plans – monthly, quarterly, semi-annually, and annually. Renters should ask about installment plans; however, there may be a service charge for the extra paperwork in billing for installment payments and policyholders will likely get a discount paying annually upfront.

What discounts are available?

  • Discounts are available for those who have any combination of the following – dead bolt lock, smoke alarm, fire alarm, sprinkler systems, or fire extinguisher. Anything that minimizes the risk of the insurance company and lowers the chances of a claim or payout.

How can you best make your tenants aware of the benefits of a renters’ policy?

  • When you first rent out your property, you may want to mention that they should secure a renter’s insurance policy and remind them of their exposure to risk once in awhile. Some educational materials may help open their eyes to the liabilities they face without coverage.
  • Make them aware that their possessions are indeed worth something, probably more than they think. This is especially true when consumers think of replacement costs. A phone, iPod, or laptop here or there will not break the bank, but buying your entire life back in one shot might come with a heavy price tag.
  • Tell them that they would be liable if they caused a fire at the property or if they were directly or indirectly responsible for damages. A renter’s policy would cover them, and also includes much broader coverage than they might think.

Are there any ways you can help them get a renter’s policy?

  • You can buy a policy for them in their name and include its cost in their rent. Remember that it becomes their policy. Should they move out six months after you the paid annual premium and ask the company for a refund, they will get the refund, not you, because the policy has to be in their name. Considering the cost may just be $20 more per month, most tenants would hardly notice the difference in rent.

Overall, be prudent whenever you buy insurance affecting your income property business. You’ll save on the premiums and you’ll protect your assets. Making your tenants aware of the benefits of having a renter’s policy is just one way to ensure your business, homes, and buildings are protected. After all, what’s the cost of a couple hundred dollars a year when we are talking about properties worth hundreds of thousands, if not millions, of dollars.

Author Bio: Bryan is a personal finance blogger and freelance writer at Gajizmo.com. Bryan graduated from a top-ranked university with a finance degree and has worked in M&A and private equity for 3 years.

More from Bryan can be found at www.Gajizmo.com.

Image courtesy of FreeDigitalPhotos.net

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Leave a Comment:

30 comments
DC @ Young Adult Money says April 15

We included in the terms of our lease that our renter get renter’s insurance, but I’m not sure she did. It’s something that we really should talk to the about in case an emergency happens we’d hate for them to find out that their stuff isn’t covered by our home insurance.

Reply
    Grayson says April 15

    That is good that you included it DC. Many people don’t even know about it.

    Reply
Greg@ClubThrifty says April 15

When I was a tenant, I never purchased renter’s insurance – mainly because I didn’t have anything of value. However, as a landlord, we encourage people to purchase it. For one, they have more stuff than I ever did, and we can’t possibly cover their assets with our landlord policy.

Reply
    Grayson says April 15

    I am the same way as you. I didn’t own that much stuff, but I also had never heard about it until I stopped being a renter. Oh well!

    Reply
Laurie says April 15

Great article, Bryan. We always had renters insuance when we rented – it’s cheap and worth the money.

Reply
    Grayson says April 15

    You are right Laurie. It is very cheap and it can save you a lot of money and headaches if something were to happen.

    Reply
    Bryan says April 15

    Agreed, Laurie. I never realized just how incredibly cheap it is until I researched it for this article. Frankly, for $200-$300, it would be insane not to buy it, especially if you don’t trust your landlord to maintain the property.

    Reply
John S @ Frugal Rules says April 15

We always had renters insurance as it was always so cheap for us. We were able to add it to what we already had through USAA and it ended up being less than $10/month for us. Given the cost, it was just a no brainer for us. We did not have a whole lot of assets at the time, but the peace of mind was worth it.

Reply
    Grayson says April 15

    USAA provides everything, don’t they? For less than $10/month, you can lose. Peace of mind is worth more than that.

    Reply
Shannon @ The Heavy Purse says April 15

I know most places in LA require (or very strongly encourage) renter’s insurance, which I think is smart. It’s generally affordable and even though you may think you don’t own much – you always own more than you think do. 🙂 And if you lost everything and had to replace then you’d really find out how much stuff you own! It’s a small price to pay to protect your belongings.

Reply
    Grayson says April 15

    It is probably good that they require or strongly encourage it. Around here, most people don’t even know about it.

    Reply
Sicorra says April 15

Excellent post! I completely agree. Tenant insurance is very important. I believe it was even included as a must have in our rental agreement when we rented this house. But either way I wouldn’t live without it. Along with all the coverage you listed, we have a million dollars in coverage if we accidentally destroy the house. As well, our insurance will pay for us to live somewhere else if something happened and we had to leave while it was being fixed. Whether you rent or own, insurance gives you peace of mind.

Reply
    Grayson says April 15

    It sounds like you have a pretty good setup there with your insurance Sicorra.

    Reply
Jose says April 15

Good post on a topic that is often overlooked! Not having renters insurance is silly, especially when you look at what the premiums cost!

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Canadian Budget Binder says April 15

Great post! If I was renting there is no doubt in my mind that I would get renters insurance because for the low cost it gives me peace of mind.

Reply
    Grayson says April 15

    There is nothing better than having peace of mind while only paying little for it.

    Reply
Jenny @ Frugal Guru Guide says April 15

College students in university dorms are generally covered over their parents’ policy. I’m not sure this is true of college students in private dorms or apartments.

Reply
    Grayson says April 15

    I don’t know how it works in the US, but anyone in private apartments have to pay for rental insurance or they could lose their stuff.

    Reply
Jim says April 15

Great article, yes renters insurance is so important. If the tenant has someone over to visit and they trip and fall in the house, their insurance is primary, the landlord’s is secondary. If the renter causes a fire, because they were smoking in bed, the liability portion of their policy pays for any damages to the home, not the landlords. Most people dont even think about a renters policy, and they are really inexpensive for the coverage they provide!

Reply
    Grayson says April 15

    Thanks for the information Jim. I didn’t even know about that.

    Reply
Pauline says April 15

I have home insurance for the flat I own and my tenants sign a rental agreement that shows them that only my belongings are insured. Since the flat is furnished they only have clothes and laptops to their names so I don’t think they are covered.

Reply
Bryan says April 15

Thanks for all the support everyone. Glad you guys liked the article. It is interesting how often we forget the tiny, inexpensive things that can make a huge difference when we need them most.
Lastly, thank you Grayson for the opportunity to guest post. Really appreciate it.

Reply
    Grayson says April 15

    You are welcome Bryan and thank you for the great article.

    Reply
Justin says April 15

You raise some great points Bryan. I didn’t have renters insurance, and luckily nothing went wrong. But when I do start investing in real estate I may get it for my tenants, if only as a means to help keep them on as renters.

Reply
    Grayson says April 16

    That sounds like a good way to keep good renters Justin.

    Reply
Budget and the Beach says April 16

I’m currently finally looking into getting renters insurance. I always made the excuse that I just don’t have really valuable stuff…but I actually do…two computers which if stolen would affect my job since I work from home. Just a little more peace of mind.

Reply
    Grayson says April 16

    It is cheap and easy to get. Well worth the peace of mind.

    Reply
CF says April 16

I didn’t have renter’s insurance for the longest time and then one day, roofers working on tarring the roof set my apartment on fire. Yep… :/

Reply
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