Renters Insurance: Why Landlords Should Require It

First and foremost, let us clarify that this is not YOUR landlord property insurance.  Renters insurance is taken out by the tenant to cover their personal possessions.

A few years ago, we only "suggested"  that our tenants take out a policy, but we now REQUIRE it from all tenants because it covers way more than just the tenant’s personal property.

In this episode we are discussing what renters’ insurance is, why you should make it mandatory for all tenants to have a policy, and how their policy (at no cost to you), also covers you.

LINKS

👉 Episode 20: The Nuts and Bolts of Residential Rental Property Insurance

👉 Episode 21: Rental Property Insurance Part 2, Interview with Ryan Bravo

👉 Your Landlord Resource has teamed up with ​Toggle​, a division of Farmers Insurance that offers competitive pricing of renters insurance for tenants. 

Policies start as low as $5 a month! 

Download this PDF to present to your tenants with your renters insurance request! ​​​Toggle Renters Insurance Flier.pdf

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Transcript

Stacie: 0:00

Working on your business also includes risk assessments and that is why we pivoted from recommending renter's insurance to requiring it. So when the kids were signing leases while living away at college, of course we were reviewing those leases because we had to co- sign on most of them. And we see that these large property management companies required everyone to have a renter's insurance policy. And we were like, hmm, what's that about? And maybe we should be requiring it too? And the answer was yes. We all should be. And we're here today to tell you why.

0:42

Welcome to your Landlord Resource Podcast. Many moons ago, when I started as a landlord, I was as green as it gets. I may have had my real estate license, but I lacked confidence and the hands on experience needed when it came to dealing with tenants, leases, maintenance, and bookkeeping. After many failed attempts, fast forward to today, Kevin and I have doubled our doors and created an organized, professionally operated rental property business. Want to go from overwhelmed to confident? If you're an ambitious landlord or maybe one in the making, join us as we provide strategies and teach actionable steps to help you reach your goals and the lifestyle you desire, all while building a streamlined and profitable rental property business. This is your Landlord Resource Podcast.

Stacie: 1:30

Hey there, landlords. Thanks so much for tuning in to listen to the Your Landlord Resource Podcast. I am your host, Stacie Casella, and I'm here with my co host, Kevin Kilroy, who also happens to be my husband and business partner.

Kevin: 1:45

Hey there, guys. Appreciate you all being here again.

Stacie: 1:49

All right, everyone. I want to start off with a quick request. We are now able to get texts from our listeners. Would you please text us a question that we can use on our upcoming Q& A episode? If you prefer to email us, you can do that too. The links are both in our show notes.

Kevin: 2:06

And we do check those texts a couple times a day. So if you do text us, be patient, we'll eventually get back to you. But when we do these Q and A episodes, this is your chance to get free coaching from us. So please send in your questions and we'll do our best to answer as many as we can.

Stacie: 2:27

And if for some reason we can't answer your question, we will absolutely respond to your text or email with our best answer or advice on how to handle the situation. Okay, so today we are going to be talking about renter's insurance. And this is not the insurance that you should have to take out on your rental property. We already did a couple episodes on that. So if you want to check them out, we will link them in the show notes and you can give them a listen. Renter's insurance is for your tenants. And you might be thinking, what do we care if our tenants are covered? Well, because there are a few ways that your tenant's renter's insurance policy can benefit you as a property owner.

Kevin: 3:10

So for the longest time, we didn't require our tenants to hold a renter's insurance policy. We had a disclosure in our lease that recommended they take one out, but we didn't require it. Why didn't we? Well, very simply, we didn't know any better. We thought those policies were to only cover a tenant's personal property, you know, in case of a fire or a flood, like a broken water pipe, or if a tenant in an upstairs unit let their sink or tub overflow. But a few years ago, we had a change of heart, not because something tragic happened, but more because our kids were renting places during college now and those landlords required it. And it got us thinking and we did some research, which included calling our insurance broker to get his thoughts on the matter.

Stacie: 4:00

Yeah, so let me jump in here a second. And I'll do my best to keep this tangent short. But you guys, it is so important to always be reading and researching ways to improve your business. Like it or not as rental property owners, we're entrepreneurs, we're business owners. And operating a business does not just mean staying afloat with the day to day tasks working in your business. From time to time you need to work on the business by analyzing your income and expenses. By finding ways to operate in a more organized manner, whether that be using the cloud for document storage that you can access from anywhere. Or automating rental payments or installing smart locks so your tenants can't get locked out. Plus understanding what improvements you need to do to make the living environment for your tenants better and to continue attracting your best tenants while yielding market rates. Working on your business also includes risk assessments and that is why we pivoted from recommending renter's insurance to requiring it. So when the kids were signing leases while living away at college, of course we were reviewing those leases because we had to co- sign on most of them. And we see that these large property management companies required everyone to have a renter's insurance policy. And we were like, hmm, what's that about? And maybe we should be requiring it too. And the answer was yes. We all should be. And we're here today to tell you why.

Kevin: 5:34

Exactly, and to piggyback on Stacie's tangent, pay attention to what other landlords are doing because there might be a good reason behind it. It's exactly why we started Your Landlord Resource. So many influencers or content creators, whatever the heck we are, focus on getting the investment. And then what? And I get that many of you consider hiring a property manager and that's fine too. We're here for the rental property owners who want to give it a go and self manage their properties because they don't want to put that huge expense out just yet or maybe they want to have complete control. Or maybe because they want to learn the ropes so they can't be taken advantage of down the line when they do finally hand their property off to a manager. We are here as Realtors, property managers, and rental property owners ourselves, to teach you what we have learned so you can try to avoid the trials and tribulations we've experienced.

Stacie: 6:37

And to give you thought provoking information so you can see if something that is working for us can also work for you and your business. And just because we do something with our properties, doesn't mean it always works for everyone. Except for renter's insurance. Across the board, this is something that all landlords should implement and require of their tenants. It is of no cost to you. And the only thing you need to manage for it is to make sure that the tenant has it and that the address is correct on the policy. But let's get into why you should require it. And I'll keep it easy, liability, liability, liability. Where your rental property insurance covers the actual structure and your personal property, like the tools that you keep there or patio furniture that you provide. It does not cover anything for the tenant. And why should you care? Because if something catastrophic happens and your tenants cannot live in the unit while it's under renovation, and that catastrophic event is because of negligence on your part, like a roof leak or mold from an undetected window leak or a water leak. Your tenant can come back and sue you or your insurance company for expenses incurred. But not if they have renter's insurance. That insurance policy will cover the temporary housing and any moving expenses incurred. It also covers liability for injuries. So think about if a tenant has a company come out and install cable or internet at your property. And the connection is coming from a cable outside that is up at the roof level. That person's going to have to get on a ladder. What if the tenant's kid comes flying around the corner and rams into that ladder, causing the installation person to fall and break their arm? Or the mailman or Amazon delivery person trips on a toy or a hose that was left out by a tenant or a tenant's child, and that person gets hurt. Or the tenant's guest is over there drinking and falls down the stairs. And the most common issue of liability is if you allow pets and the tenant's dog gets out and bites someone. None of these are due from any negligence of your own. But if your tenants do not have insurance to cover these possible issues. Who do you think these injured persons, or more importantly, their health insurance company is going to go after to be compensated? Your insurance first, and if they won't cover it, then they will come after you personally because you, or hopefully your LLC, own the property and you allowed that person to live there and make decisions. You allowed the tenant to have a pet. You trusted your tenant would not allow his guest to get drunk, but that trust only goes so far. The point being that if they have their own liability insurance. More often than not, their policy will cover any of these unfortunate events.

Kevin: 9:42

And you guys, we aren't trying to scare you. This is just reality. And whether it's right or wrong, when someone gets hurt, they want someone else to pay and compensate them for their suffering. So let's go back to talking about what if there is a catastrophic event that leaves the rental uninhabitable. Let's say it is a fire and this fire is caused from a tenant frying food and the oil spills over and catches the stove top on fire. The fire quickly spreads and even though you've provided a very capable fire extinguisher for your tenants to use, they panic and run out of the kitchen. And the kitchen gets completely destroyed.

Stacie: 10:22

Happens all the time.

Kevin: 10:25

Right. So, even though it was an accident, this type of event is considered negligence on the part of the tenant. Depending on the level or amount of insurance they have, their insurance would first be responsible for paying for that damage, as well as covering the loss of any personal items from that fire. And if you've ever had to deal with smoke damage, for the most part, everything gets trashed. So first, let me address why this coverage for your tenant is important. Their policy will cover their personal items that were considered a loss. So they'll get new pots and pans and linens and whatever else was in the kitchen. Maybe an expensive air fryer or a Vitamix or something like that. If anything is not considered a total loss, the insurance company will cover professional cleaning from the smoke damage, like for their clothing or bedding. They will cover the tenants moving expenses to temporary housing. And if you've listened to episode 66, where we discuss midterm rentals, it is likely that their insurance company will pay to place them into a similar unit or home for a few months until they can find a replacement property, or wait for the repairs to be completed at your property, that is, if you're going to allow them to move back in. And the most important thing about this event is that, like I said, their insurance should be covering the cost of the repairs from the damage that their negligence caused. And you may be thinking, well, I have insurance for circumstances like this. Yes, yes you do. And what happens when you have to file a claim on your insurance? Your insurance rates will go up significantly.

Stacie: 12:11

Well, that's if they don't drop you, which many insurance agencies are doing right now.

Kevin: 12:16

Yeah, very true. And why should you, for years on end, be paying those increased insurance rates after the tenant is long gone. So let me repeat this. Your tenants having renter's insurance is at no added cost to you.

Stacie: 12:33

Now, where the cost of a policy varies, and we know you don't want to put a added financial burden on your tenant, most policies are very reasonable and cost from$15 to$25 a month. And some are as little as$5 a month. It all depends on what company they choose, and what they have to cover. For those with a lot of collectibles or electronics, it might cost more. Case in point. Our oldest recently got engaged. He doesn't own his own home yet, and he's living in a family members rental down in San Diego. Where he had a very basic policy to cover their personal items, I think the most expensive item they had on there were some e bikes. But when they got engaged, I encouraged them to add a jewelry endorsement onto their policy to cover her new beautiful engagement ring. Cause you just never know. So the value to their personal property will contribute to the end cost of the policy. Like I said, in general, the cost of insurance policy is usually very low per month. Depending on the property, we require a minimum liability coverage of$100,000. And interestingly enough, for an additional few dollars more per month, the tenant can secure$300,000 to$500,000 in coverage. And why is the amount of coverage necessary for you? Because also like we just discussed, damages caused by a tenant allows your liability insurance to subrogate funds from the renter's insurance policy. The more you require, the more coverage you have to cover damages.

Kevin: 14:07

So, think about it. If you have a single family home and the kitchen gets destroyed by a fire or the tenant's child leaves the sink upstairs running and it floods the entire upstairs and some of the downstairs, likely the damage will not exceed$100,000. But if a fire wipes out the entire home because the tenant left a candle burning when they left to go to the store, that$100,000 will not be nearly enough. And if you own a duplex and there is a significant fire, and both tenants have to move out,$100,000 is not enough to cover you for your losses.

Stacie: 14:46

So, that exact situation happened to someone we know in our city. There was a duplex with a young family on one side, and a single female on the other. The dad put food on the stove for the child, went and sat down, and fell asleep. The smoke detectors woke him up, but unfortunately, it was too late, and the entire kitchen was engulfed in flames. The fire breached the roof and the firefighters were up there shooting water at it from all directions. And unfortunately, the kitchen backed up to the other unit's kitchen and the fire spread through the wall to that unit so it was severely damaged as well. The landlord did not require renters insurance and their insurance had to cover all of the damages. And the tenants lost a ton of their personal belongings and had no coverage to replace any of it. It was a very sad situation.

Kevin: 15:40

Yeah it was. And that was several years ago, likely before renter's insurance was really well known. So, it's up to you what minimum liability amount you decide is best for your property. So, talk to your insurance broker. For our sixplex, our broker recommended$100,000 for each tenant. For a single family home, maybe more. It all depends on the value of your rental because replacement costs will be way more in California as opposed to, say, Indiana. So according to Forbes, many tenants don't think they need renter's insurance. Either they underestimate the value of their possessions or are under the misconception that their landlord is responsible for their belongings and don't think they need it. Landlords, it's up to you to require that they have this coverage. We could not find anything against being able to require it. But of course, please check with your city, county, or state to make sure it is legal to do so. If you are in a position where your tenant is already placed and you haven't required it yet, cross your fingers until the next renewal and then add it onto your lease. You certainly can amend your lease midway through if you prefer to do that too. Now, if you're placing a tenant, please do yourself a favor and make sure it is known upfront that you require this. There is nothing worse than a tenant feeling nickel and dimed after the fact. You chance them resenting you.

Stacie: 17:15

Yeah. And to be honest, this requirement is for their protection. One other advantage to your tenants having renters insurance is that it will cover theft of their personal property. So if their laptop is in their car and gets stolen it's covered. If their bike is chained up outside and it gets stolen it's covered. Obviously no benefit to you, but by you requiring the insurance, you're going to be seen as looking out for them. And should something happen they're going to appreciate you all the more.

Kevin: 17:47

Okay, the last thing we want to bring up is where you can find a reasonable policy. You can leave it up to them and they can reach out to their car insurance carrier and see about getting a better price by bundling policies. Or, we have a link that we were given to use for Toggle Renters Insurance, which is a division of Farmers Insurance. Quotes are free and policies start as low as$5 a month. We have it all set up for you if you'd like to use it. We have a PDF that you can include with your correspondence that includes all the links for the quotes. We will link that in the show notes. Now, we will say that we are an affiliate of Toggle. But please understand that we only recommend companies that we use and work with or would use ourselves. So, if you don't want to do any work, head over to our show notes and download the PDF. There's no subscriptions or anything else. This is straight up just a way for us to provide you with what you need to help your tenants get themselves renter's insurance.

Stacie: 18:52

Yep, and so because Toggle is a division of Farmers Insurance, you might think that they're going to cost more, but they really don't. When it comes to insurance, I personally like to use companies that have a good track record and have been around for a while. And with Toggle being backed by Farmers, you get that. All right, so that is our show for today. We cannot express enough how much we appreciate you listening to what we have to say. It really is humbling. So thank you. Let me close out the show with a few housekeeping things. Like Kevin mentioned earlier, you can now text us questions. Please take advantage of this new feature. The link is in our show notes on all podcast platforms. And if you don't want to text, our emails are linked as well. We have an online course we are working on that will walk you through the steps of placing your ideal tenant. It's called From Marketing to Move In, and it will cover how best to market your unit with photos and the writing of your ad, showing the unit, accepting applications, and how to vet your applicant. We will also teach you about your lease and what it should contain and what to do before and when your tenant moves into your unit. So if you've struggled with finding the right tenant to pay rent on time or one to take care of your unit. This course might be for you. You can sign up to get on our waitlist and potentially be a part of our first beta group by using the link in our show notes. And of course, we have links on there for our free weekly newsletter, all the forms and documents that we've created for you to download, our private Facebook group, and all the links to our social media sites for you to follow along with us. So thank you so much for sharing your time with us today. We are very grateful that you find our content useful. And until next time, you've got this, landlords.