When Should Landlords Require Renter’s Insurance?

Many landlords worry over scaring away tenants resulting in longer vacancies if they require renter’s insurance – but not requiring it could cost even more.

The initial reaction of many landlords to the subject of renter’s insurance is, “my property is insured, so why should I care?”

On the surface this response seems obvious and leaves nothing further to discuss.

As experienced and professional property managers, we strongly disagree. There are many situations where you can, “win the battle, but lose the war” if you’re shortsighted. Let’s examine several potential situations where requiring renter’s insurance could actually save landlords money in the long run.

Dog Bites
If you accept dogs at your rental properties you run the risk of that dog biting someone and you getting sued. Why you? Because this is America and the person with the money always gets sued! Theoretically, the dog could even bite an invited visitor inside the property and you could be sued. Even if you win the case, how much would you spend in legal fees defending yourself?

Wouldn’t it be cheaper to require tenants with dogs to obtain renter’s insurance with at least $100,000 liability coverage for dog bites and name you as additionally insured?

Basement Storage
Tenants store personal items in basements all the time, assuming their belongings are perfectly safe. What happens if these items get ruined by sewer backups or other types of leaks? Who’s the tenant going to blame no matter what your lease states? Once these tenants find out you have no intentions of covering their loss, they obviously won’t be too happy with you. Besides dealing with a very strained relationship for the rest of the lease term, what percentage of tenants do you think will break the lease or take out their frustrations on your property? Many rental properties will never experience this disaster, so renters insurance may not be necessary.

On the other hand, if you have a property that you know is prone to sewer backups or water seepage, then it may be wise to require tenants to obtain their own insurance.

Insurance Cancellation
Many landlords believe they’re 100% protected by their property insurance. You might say they feel a bit invincible knowing they have insurance. Well that may be some false security.

Just like your car insurance premiums would probably increase after an accident, the same thing has a high probability of happening if you file a claim on a rental dwelling insurance policy.

What’s more, how many landlords have noticed insurance premiums on rental properties seem to be increasing faster than the premiums on owner-occupied properties? How many have had a policy cancelled instead of renewed? Both are likely to happen with too many claims. Even worse, if an insurance company makes the decision to cancel one of your policies, usually ALL of your policies with them are cancelled! To top it off, insurance companies have a claims database where they share info, so good luck finding a new insurance company that won’t hold your claim history against you and either decline coverage or charge significantly higher rates.

It could be much cheaper to lower your chances of all this by requiring more of your tenants to have their own renter’s insurance that might cover all or part of a claim BEFORE a claim is filed against your policy.

We’ve only touched on a few potential pitfalls where requiring renter’s insurance could protect a landlord. The best course of action is to consult with a knowledgeable insurance professional to understand the risks and repercussions, so you can make a fully informed decision.

We also welcome additional scenarios and input from our readers!

Having tenant’s insurance has been a standard clause in all my tenancy agreements for the past decade. I tell them it’s cheap–it’s only like $15 a month for piece of mind. I also tell them no dogs. I’m very picky with who I let in.

Same here. I hate to discriminate against all dog owners but I seem to have a LOT more trouble with dog owners.

I rent to families. Families have dogs so I take dogs. If the dog attacks a person and they sue me they have to prove I was negligent (see Management of property below). That would mostly mean that I did not maintain the fence and the dog got out. I have to approve the dog in advance and I don’t rent to dogs that my insurance company won’t cover:

  1. Pit Bulls & Staffordshire Terriers
  2. Doberman Pinschers
  3. Rottweilers
  4. German Shepherds
  5. Chows
  6. Great Danes
  7. Presa Canarios
  8. Akitas
  9. Alaskan Malamutes
  10. Siberian Huskies
  11. Wolf-hybrids

When you ask them what kind of dog they have they will say “it is a mixed breed”. I see the dog and I see pit bull. What I see trumps what they say it is.
When we talk about insurance we are talking about just a part of a topic. The topic is risk management of your rental units. There are 5 parts of the risk management of your property.

Preparation of the property – If you don’t make your property first rate before the tenant moves in you will not be able to attract the type of tenant that you want. Bad people want to rent good properties or bad properties good tenants will only rent good properties. Fix everything to make the unit safe and functional.

Tenant selection – Contrary to our Christian values about being reborn etc, people don’t change. The guy that was kicking holes in walls in your unit didn’t just stat kicking holes in walls when he moved into your unit he was kicking holes in his last unit also. People that have been sued or have sued their landlords don’t get in my units.

Management of the Property – If things break fix them. If you have a track record of making sure that things that are broken are fixed there is no trend to justify any case. They don’t win a case because they got hurt you have to have been negligent. Fixing things means you are not negligent.

Don’t outrun the lawsuit out run the lawyers – If a lawyer is deciding if he wants to take the case against you he will look to see if he can get paid. When the tenant tries to find a lawyer to sue you, the lawyer will look to see if you have anyway to pay him. In Texas if you win a lawsuit you can’t get my house, may cars, my personnel property, the tools of my trade or my retirement money. Most people don’t have a lot of cash sitting around that is not in one of those. The place the lawyers will look to is your investment in real estate. They will try to get your rent houses. If you keep the houses leveraged up there is no money in them to give them if they win a judgment. Lawyers don’t want to work for free.

Insurance – This is where insurance comes in. If you are sued and found to be negligent the place the money will come from to pay the lawyers is insurance. If the worst thing possible happens like a child is killed due to your negligence (I keep saying due to YOUR NEGLIGENCE) the money to pay it will come from the insurance. Their lawyer your lawyer, the insurance company and you will be pressuring the plaintive to take the amount of insurance for payment of the judgment. That is because they don’t have to wait for you to sell your lake house or chase your mutual funds etc. Taking the insurance gets the lawyer paid by the end of the month. That means that it is likely what they will take.

Can you buy a blanket Renters insurance and add the premium to your rent that way the tenant doesn’t feel obligated? If you can, do you need keep changing the tenants name every tim you have a new tenant?