A Landlords Guide to Renters Insurance
This article looks at renters insurance and explores the pros, cons, and considerations from the perspective of a landlord.
Successful landlords mitigate risk. An effective risk mitigation strategy is to have a Renter’s Insurance Policy in place on every rental you own or manage. These policies are not very expensive and cover a variety of problems. As a landlord, the way to guarantee your tenant has a policy is to require your renters insurance as a stipulation of a lease. This is a wildly underused tactic that benefits both landlord and tenant.
This article explores the topic further and offers hard learned lessons from landlords who have been there, done that.
What is Renters Insurance?
Renters insurance is an insurance policy that provides financial protection for renters. Most policies cover personal property and have liability protection. If a tenant has renters insurance, their policy typically provides coverage for living expenses in the event of extensive property damage, and coverage for personal property.
It is estimated 57% of renters have renters insurance. In our experience, this is inflated. In reality, the percentage of renters who have renters insurance is more likely around 30% which leaves a high percentage of renters, and landlords, who can benefit from this simple and effective policy.
As a landlord, why should you care?
Simply put, renters’ insurance is a layer of protection that shields a landlord from risk, a protective membrane that must be penetrated before a landlord gets involved. When a renter has a problem such as theft, vandalism, or even natural disaster, they can often resolve many of the related financial woes without involving the landlord. The burden first falls to the Renter’s Insurance Policy. Because the renter has this protection, the landlord inherits the ancillary protection, a liability firewall that shifts a problem from the landlord to the renter.
There are multiple considerations to factor in, explored below.
How often is this likely to happen?
There are a number of fairly common circumstances where a renters insurance policy comes into play. By isolating these issues and analyzing how commonly they occur, we can use data to estimate the overall probability and better understand risk. We have estimated the likelihood of an occurrence by compiling readily available insurance data and isolating issues that would be covered by most rental insurance policies.
In total, there is an approximately 1.7% chance of something occurring on any given rental property, in any given year that would be covered, at least in part, by a renters insurance policy. This is comprised of:
To gain confidence in the 1.7% estimate, we compared it to a related metric in order to see how it stacks up and gain confidence. Of all insured homes in America, 5% file a successful claim in a given year for ALL claim types. Because all types of insurance claims is a superset of what is covered by Renter Insurance claims, we feel an estimate of 1.7% is reasonable.
How much does it cost?
The cost of rental insurance varies by state and the type of property being rented but there are general baselines. According to Insurance.com, in 2023 the average renters insurance costs “$29 a month or about $347 a year for $40,000 in personal property coverage and $300,000 in liability”.
Since most renters insurance claims relate to personal property, they do not require as much coverage. Even a smaller policy provides an adequate layer of protection for a landlord. An property with minimal renters insurance can cost between $10 and 15 per month and cover $20,000 in personal property coverage and $50,000 in liability.
What are the downsides?
If your tenant elects to purchase renters insurance, there is no downside. As a landlord, you only benefit.
However, if you make renters insurance compulsory and require it as a condition of entering a lease, there is a downside to consider. Some prospects will be unwilling to bear the cost and may choose not to rent your property. Given only about a third of rental properties have renters insurance, it is reasonable to assume you have the potential to alienate up to two thirds of your prospective renters if you require it.
Our service at RentSavvy flips this on its head. Rather than making renters insurance mandatory, we augment your listing by providing it as a value-added service for your prospective tenant. RentSavvy pays for Renters Insurance on behalf of your new tenant. When this is communicated in the rental listing, it helps your listing stand out from the crowd and differentiate it from other listings attracting more attention and better prospects.
In conclusion, requiring renters insurance as a condition of a lease is a great way for landlords to mitigate risk. It is relatively inexpensive and offers a layer of protection to both landlord and tenant. By understanding the cost, coverage, and potential downsides, landlords can make an informed decision when considering renters insurance.
With the help of services like RentSavvy, landlords can offer renters insurance as an incentive to attract better tenants, rather than making it a requirement making renters insurance a tool that all landlords can leverage.
How does RentSavvy help?
Our focus is finding quality tenants for landlords and filling vacant properties We have developed a process that minimizes vacancy and maximizes yield. We use technology to improve the process for all parties. One part of our offering differentiates your rental listing by providing Renters insurance but there are many other ways we help your listing standout and lean into technology to improve the process.