Do you ever read the rental listings and ask yourself – why do landlords require renters insurance? After all, I don’t need homeowner’s insurance so why does it matter to the landlord if I have insurance to cover my belongings? It’s not as if it matters to them. Right?
The quick answer to Why Do Landlords Require Renters Insurance? Landlords require renters insurance because it provides an extra layer of liability protection if someone is hurt in the rental unit, or if something like a fire occurs. It’s also an effective way of screening tenants. If someone doesn’t insure their belongings, they may not care what happens to them or the rental.
Let’s take a look at these, and other reasons why landlords require you to take out renters insurance.
Renters Insurance Provides Coverage For Liability
Renters insurance protects the renter and by extension, the landlord from liability for at-fault damage to:
- The building as a whole.
- The tenants rental unit.
- Units neighboring the tenants
- The tenants themselves
- Visitors to the tenant’s residence
- Tenants of and visitors to rentals immediately neighboring the renters unit.
There is a fire in condo #501. The fire causes damage to the tenant’s belongings, appliances which belong to the landlord, the wall between condos #501 and #502 and belongings of the resident of #502. Upon investigation, it is discovered that the fire was the direct result of an action by the tenant in #501.
If the tenant does not have renters insurance, the landlord would be liable for the cost of repairs to both units, the replacement of the appliances in the condos, and the damage to the belongings of the tenant in #502.
If the tenant does have renters insurance, their policy will cover these costs meaning the landlord will:
- Avoid having to make a claim on their insurance and probably face an increase in premiums as a consequence.
- Not have to pay the deductible on their own policy.
Renters Insurance Lessens Possible Stress And Disputes
Besides, renters who do not have their own insurance may attempt to make a claim against the landlord if there is an accident or a loss or damage to their belongings. Whether or not this results in a pay-out from the landlord’s policy, it still costs the landlord time, stress, and possibly money to deal with the claim. Not only that, but it sets both tenant and landlord up to develop an oppositional relationship.
By requiring renters insurance, the landlord can minimize the possibility of this happening.
Some Landlords Require Renters Insurance So They Can Be Pet-Friendly
Even though you may have paid a damage deposit and a pet deposit, there is still a risk to the landlord that your pet could cause damage over and above the combined value of these payments. Not only that but landlords don’t want to risk every last cent of the pet deposit and general damage deposit being eaten up by pet caused damage.
Therefore, by asking a tenant to purchase renters insurance, a landlord is adding another layer of security should any damage occur.
Renters Insurance Helps To Screen Potential Tenants
When a landlord asks for renters insurance, it doesn’t just provide them with an additional layer of protection in the case of legal liability.
An indirect benefit to landlords is that by telling potential tenants that renters insurance is a requirement of the tenancy, they will receive a variation of one of these types of responses:
- OK I’ll get straight on that
- Nope, not gonna’ happen
This tells the landlord a lot about the tenant. How? Well, let’s take a look at each kind of response.
The tenant who responds to a request for renters insurance is not necessarily a problem. This may be their first rental or the first time they have been asked to take out insurance. The real key is the answer they give when the landlord explains why renters insurance is necessary.
OK, I’ll Get Straight On It
If the tenant has a positive response to the need for renters insurance, it tells the landlord the following:
- By accepting the need for insurance, the potential tenant is showing they are willing to work with the landlord and accept the rules and regulations the landlord has in place. This makes it more likely the tenancy will be a success.
- The tenant cares enough about their belongings to pay for insurance. This makes it more likely they will be respectful of the rental unit and treat it well.
- The tenant is more likely to be a generally reliable and responsible person, which is what a landlord is looking for in a tenant.
Nope, Not Gonna’ Happen
When a tenant informs a landlord that they are not willing to take out renters insurance, it tells the landlord that:
- The potential tenant is not respectful of the rules of the tenancy.
- If the tenant doesn’t care enough about their belonging to insure them, are they going to be respectful of the rental unit?
- There is the possibility that the tenant is not going to be co-operative in other ways during their tenancy.
- If the tenant says they will not buy insurance because they cannot afford it, this could be a red flag for a landlord. If the tenant can’t afford a reasonably modest monthly premium for renters insurance, are they going to have trouble making the rent?
So you see while requiring a tenant to take out rental insurance does not directly say “This person is/is not someone I would like to see living in my rental” it does give a clear indication of how responsible, reliable, and respectful a tenant is likely to be.
What Happens If I Let My Renters Insurance Lapse?
This depends on what it says in your lease. If you signed a contract that explicitly states you have to have renters insurance, then your landlord will be entirely within their rights to end the tenancy. Having said that, if you have been a good tenant in every way the majority of landlords are likely to tell you that you have X number of days in which to produce a valid proof of insurance or you will be in breach of your tenancy agreement.
At worst, it is possible that a landlord can evict a tenant who has signed a lease where having renters insurance is a condition of the tenancy, and the tenant fails to do so.
Alternatively, your landlord may choose not to renew your lease when it expires, and you will have to leave your rental.
If your lease has already expired and you have continued to pay rent then in most states you have what is called a month-to-month tenancy. This is deemed to have the same terms and conditions as the original lease, so if your lease said you must have a tenants insurance policy, you must continue to do so for your month-to-month tenancy.
Does My Landlord Have The Right To Ask For Proof Of Insurance Every Year?
In a word, yes. Your landlord can ask to see proof of your tenant’s insurance when you first move in as well as when the lease is renewed or on the anniversary of your lease if you are on a month-to-month tenancy.
Technically speaking your landlord is within their rights to ask you more frequently than this. After all, it is not unknown for tenants to show the landlord proof of insurance and then cancel the policy immediately afterward. However, if your landlord suddenly began to ask to see your policy too often, it could constitute harassment.
Do I Have To Buy Insurance Before I Move In?
The majority of landlords write a clause into the lease that will give new tenants a week or two to get their insurance sorted out, but there is no rule that says they have to. A landlord could just as easily say that you must have renters insurance in place before moving in.
Landlords require renters insurance for several reasons.
First of all, if something happens in the tenants rental, which results in litigation, the renter’s insurance will be the first to take a hit and not the insurance of the landlord. In addition, this reduces the landlord’s financial burden in as much as they do not have to pay a deductible or an increase in their own premiums post claim.
Secondly, it provides an additional layer of tenant screening. If a prospective tenant is willing to take out renters insurance, they are less likely to be a problem tenant than one who refuses to insure their own belongings.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.