Only 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.
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