For many landlords, requiring a tenant to obtain renters’ insurance is a standard business practice. Tenants can and will have accidents in a rental property, and renters’ insurance can help protect a landlord against claims made by a tenant or their guests.
In this article, we’ll explain what renters’ insurance covers, the difference between landlord and renters’ insurance, and how much renters’ insurance some landlords require.
Renters’ insurance is a policy that protects tenants.
Sometimes also referred to as tenant insurance, renters’ insurance generally provides three types of coverage:
Renters’ insurance covers personal property like clothing, electronics, furniture, and other personal property belonging to the tenant that is damaged or stolen, up to the coverage limit of the renters’ insurance policy.
Medical bills of a guest may be paid by renters’ insurance, if the tenant is found responsible for a guest’s injuries or if the tenant accidentally damages property belonging to a guest, it can also cover personal property.
Additional Living Expenses
If the rental unit becomes temporarily uninhabitable, renters’ insurance may cover the hotel bill or costs of other lodging. This coverage may not be available if there is structural damage to the property.
Some tenants believe that the landlord’s homeowners insurance will protect the tenant’s personal property, but that isn’t the case.
Landlord insurance covers the home itself but usually not the contents that belong to a tenant. On the other hand, renters’ insurance covers the tenant for loss of personal property inside the home, but not for damage to the home itself.
Both renters’ insurance and landlord insurance include liability coverage to pay for medical payments if someone is injured on the property and there is no party found to be at fault.
Sometimes insurance policies also have overlapping coverage. For example, if someone slips on an oil stain on the driveway and insures themselves, both parties could be held responsible even if the tenant is responsible for keeping the driveway clean.
According to Insurance.com, Many landlords require tenants to purchase a renters’ insurance policy with a minimum coverage of between $100,000 and $300,000.
The more coverage a tenant has, the less potential risk there is for a landlord. For example, a guest of the tenant could be injured and decide to sue both the tenant and the landlord, or the tenant might be the victim of a burglary and become unable to pay the rent because clothing and other items need to be replaced.
However, some state landlord-tenant laws may place a limit on the amount of coverage a landlord is allowed to require. So be sure to check with your property manager or real estate attorney before requiring a certain amount of coverage from the tenant.
Factors to Consider
State Farm recommends considering the following factors to determine the correct amount of renters’ insurance:
Reimbursement and Exclusions
Renters’ insurance policies reimburse a tenant for a personal property claim filed based on “cash value” or “full replacement cost”:
A standard renters’ insurance policy also contains coverage limits and exclusions to perils.
For example, a policy may limit the dollar amount of coverage per jewelry or electronics, or may not cover some items at all. Normally, a tenant can purchase additional coverage for extra protection if the value of personal items exceed the coverage limits of a renters' insurance policy.
Most standard renters’ insurance policies also do not cover losses or damage caused by:
According to a recent article on ValuePenguin, the average cost of renters’ insurance is about $19 per month for personal property coverage up to $25,000 and personal liability coverage up to $100,000. Deductibles average between $500 and $1,000.
The article also notes that the cost of renters’ insurance can vary significantly from state to state.
The most expensive states for renter’s insurance are Louisiana, Michigan, and Arkansas, where monthly premiums for renters’ insurance average between $37 and $30. By comparison, the most affordable states for renters’ insurance in the U.S. are New Hampshire, Utah, and Wyoming, where the average cost of renters’ insurance is $12 per month.
Both ValuePenguin and Insurance.com provide ways to search for the cost of renters’ insurance by city and state, and offer quotes for a renters’ insurance policy online.
In most states, a landlord can require a tenant to have renters’ insurance.
Many landlords will require that both the landlord and property manager be listed as an additional insured on the tenant’s renters’ insurance policy. The tenant can also normally be required to provide proof that a renters’ insurance policy was purchased and that the policy is active.
There are several reasons why a landlord may require a tenant to have renters’ insurance:
Most standard renters’ insurance policies provide coverage for personal property, liability and medical payments, and additional living expenses if the rental property becomes uninhabitable.
A tenant may also be able to customize a renters’ insurance policy by adding additional endorsements for extra coverage:
Scheduled personal property endorsement
Additional coverage can be purchased to cover items such as electronics, jewelry, or collectibles that are worth more than the coverage limit offered by a standard renters’ insurance policy. The insurance company may require the tenant to add these items to the schedule of personal property and have an item appraised before providing extra coverage.
Replacement cost coverage
Most standard renters’ insurance policies will pay for replacing an item stolen or damaged based on “actual cash value.” If a tenant has a sound system that is five years old and the electronics are stolen, the insurance company will pay for replacing a five-year-old system. By adding replacement cost coverage, the tenant will get the actual cost of replacing the stolen sound system with a similar system at today’s prices.
Coverage for identity theft
Some renters’ insurance policies also offer additional coverage for identity theft. For example, if the home is burglarized and a wallet or purse is stolen, adding identity theft coverage to a renters’ insurance policy may include coverage for legal fees, document replacement, and credit monitoring service costs as a result of identity theft.
This article, and the Roofstock Blog in general, is intended for informational and educational purposes only, and is not investment, tax, financial planning, legal, or real estate advice. Roofstock is not your advisor or agent. Please consult your own experts for advice in these areas. Although Roofstock provides information it believes to be accurate, Roofstock makes no representations or warranties about the accuracy or completeness of the information contained on this blog.
Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.
