Why Landlords Should Require Renter’s Insurance Policies

Why Landlords Should Require Renter’s Insurance Policies

Renter’s insurance. You have probably heard about it, but what does it have to do with you as a landlord? Why should it concern you whether or not your tenants take the time to protect their property?

At first glance, it is clear to see why many landlords do little more than suggest that tenants take out adequate renter’s insurance, but once you understand the benefits of such a policy, to both the tenant and also to you as the landlord, you may start to think differently about it

Renter’s insurance can be extremely valuable when it comes to protecting your investment. By ensuring the cost of damages to property within the leased property are covered, it protects your tenant’s wealth, allowing them to continue affording rent payments, even in times of crisis.

What Is Renter’s Insurance?

Renter’s insurance is a form of property insurance that covers the possessions and liability of a tenant within a rental property. It does not cover the dwelling itself or the structure.

What Does Renter’s Insurance Cover?

In general, renter’s insurance provides coverage for the tenant’s property in case of theft, fire and stormwater, providing replacements and in some cases alternative living arrangements if necessary. It can also protect a renter’s personal liability in situations where their actions (for example, flooding from a bathtub) have caused accidental damage to a neighbor’s property and possessions, especially when they are subject to a lawsuit for such damage. The amount of coverage depends, to some extent, on the value of their belongings which is often underestimated by individuals.

“Many renters underestimate the value of their possessions and would be surprised by how much it would cost to replace the items they have accumulated,” says Emily Lyons, a Liberty Mutual property insurance expert.

“It can be helpful to suggest that your tenants walk from room to room and take a full inventory of their possessions. It may come as a surprise when they add it all up. A typical renter’s insurance policy will cover up to $15,000 in property damage and $100,000 in liability coverage.”

It is important to be very clear with your tenant from the start that your landlord’s insurance does not cover their possessions at all and is simply there to cover the building structure. You can also mention that certain situations are unlikely to be covered by their renter’s insurance policy. This may include earthquakes and flooding in areas prone to such scenarios.

How Much Does Renter’s Insurance Cost?

Compared to the massive benefits derived from renter’s insurance, the cost of a renter’s insurance policy is minimal – around $200 per year – and is equivalent to the average price of a pizza delivery for a month’s policy. In some cases, tenants can even receive discounts for holding multiple policies with one firm, such as renter’s insurance and vehicle insurance.

How Does Renter’s Insurance Benefit You as a Landlord?

As a landlord, you will already have insurance in place to cover your investment on the rental property, so you can be forgiven for thinking that renter’s insurance is not something you need to worry about. While it is true that the main benefits are for the tenant, you will be extremely grateful in the event of accidental damage to your property by the tenant if such insurance is in place.

Numerous rental insurances will cover the cost of cleaning up a property after it has been damaged by fire or water, for example, as well as replacing destroyed items. This means covering the cost of removing and disposing of damaged furniture and appliances … something that could be time-consuming and costly for you.

The costs involved in even a small fire can add up quickly, so it’s a relief to know that renter’s insurance is activated in these instances. “Soot and odors from a household fire can penetrate many areas and damage paint, carpet, upholstery, drapes, clothing and other belongings. Even a small stovetop blaze can cause smoke and soot damage far beyond the actual burned area, and this damage can be hard to remove. Soot is oily and easily stains household textiles, while smoke penetrates deeply, even into the spaces inside walls. If not properly deodorized, smoke odors can reoccur.”

If renter’s insurance is not in place, it is likely that the tenant will expect the landlord to deal with the cleanup. In some scenarios, tenants may feel it is easier to simply move out and leave the whole problem to the landlord to deal with. This is a real headache, especially in conjunction with losing the income stream from rent.

It is very difficult to protect yourself as the landlord if this occurs. Looking for legal support to force the tenant to pay will cause further delays in getting your property back to a livable condition, and that has to be your main priority.

Protecting Yourself from Lawsuits

Uninsured renters can find themselves in great financial difficulty following unexpected damage to their property, or subject to lawsuits themselves if they have caused damage to a neighboring property, for example. In instances such as these, the obvious place for tenants to turn for assistance is their landlord. Sadly, past evidence has shown that tenants are more likely to bring a lawsuit against a landlord if they are unable to replace property or pay for the cost of repairs.

No matter how thorough your screening process, don’t think this would never happen in your situation. Cases involving tenants suing their landlords are becoming increasingly common. Finding themselves in a dire financial situation could be all the motivation needed for a tenant to blame negligence on your part for the damage that was caused.

Enforcing a clause stating that renter’s insurance must be in place will protect you from such desperate measures on their part and, of course, protect you from costly, stressful and time-consuming legal issues.

Protecting Your Investment

Even if your tenant does not actively come after you with a lawsuit following loss or damage to their possessions, you may find that unexpected emergencies cause financial loss to you. Replacing expensive property can amount to far more than most people expect, negatively impacting your tenant’s cash flow.

Remembering that renting your investment property is a business, you must always keep in mind that receiving timely rent payments is essential to a successful strategy. Anything that renders your tenants unable to pay rent is a sizeable problem for you. For many landlords with one or two properties, the monthly cash flow is all that is available to cover mortgage payments. Delays can be a huge concern, jeopardizing your ability to pay the loan on your investment property and leading to issues with the lender. Your credit rating may even be affected, negatively impacting your ability to grow your business by investing in future investment property.

So, protecting the wealth of the tenant is another way that renter’s insurance can help landlords to protect their own wealth! Nothing affects your return on investment (ROI) more dramatically than fixing up your investment property after your tenant caused accidental damage and ran away.


By now it should be evident to you why renter’s insurance is so valuable to you as a landlord. While your tenant’s liability is protected, as well as their possessions, you are also more likely to experience less stress as well as a reduced financial strain in the case of an emergency.

The great news is that you can actually make renter’s insurance a requirement within your lease agreement, providing both you and your tenant with protection and peace of mind. You can even include additional terms requiring the landlord to be named as “additionally insured” on the policy. Many landlords report that a clause regarding renter’s insurance has kept their relationship with their tenants strong and healthy despite difficult circumstances. Communication tends to remain open when neither party is forced to blame the other.

In brief, renter’s insurance offers fantastic, affordable benefits for your tenants. Additionally, you as the landlord also reap the rewards. Renter’s insurance translates to reduced risk, fewer worries and less time wasted. You must agree, that is priceless! It is certainly worth the effort to make renter’s insurance part of your tenancy agreement in order to maximize your profits and protect your rental income in the long run … no matter what issues arise along the way.