How Much Renters Insurance Should a Landlord Require in 2023?

As a landlord, it's important to consider the consequences of requiring too little or too much renters insurance coverage for your tenants.

On the one hand, requiring too little coverage could leave both you and your tenants at financial risk in the event of a disaster. On the other hand, requiring too much coverage could make it harder for your tenants to afford rent and lead them to look for housing elsewhere.

So what is the appropriate amount of coverage? Here's a quick rundown of what landlords need to know about renters insurance, including how much coverage tenants should have.

What Is Renters Insurance, and What Does It Cover?

Picture a scenario where a fire or hurricane ravages your rental property. Your building's structure and contents are destroyed in the process. 

You already have your landlord insurance in place and are therefore protected. If your policy is extensive enough, it could even cover household items you provide to your tenants, like electronics and furnishings. Sounds good so far, right? 

But what about your tenants’ personal possessions? All their furniture, electronics, appliances, collectibles, jewelry, clothes, and so much more? 

Renters insurance protects your tenants against various financial losses, including property damage from accidental or natural disasters, theft, burglary, water damage, liabilities, and living expenses if they need to move out for renovations and repairs.

How Much Renters Insurance Should a Landlord Require a Tenant to Have?

As a landlord, it’s important to consider the consequences of not requiring your tenants to have renters insurance. Without coverage, tenants may not be able to recover financially if their belongings are damaged or stolen. It also protects them from liability in case of an accident on their rental property.

So, how much renters insurance should a landlord require a tenant to have? The best practice is to require a renters policy that covers the replacement cost of the tenant’s belongings and provides at least $100,000 in liability coverage. This protects both parties' interests in the event of an unforeseen circumstance.

Additionally, landlords should thoroughly review and understand any specific insurance requirements outlined in their lease agreement. By following these guidelines, landlords can ensure tenants are protected while minimizing any potential risks for themselves.

Remember to check your state's laws and regulations around this topic too. Some states have a maximum limit on how much coverage you should require from your tenants. You’ll want to find a balance when setting this requirement too high or low.

If you set the bar too high, some potential renters might be discouraged because they’d prefer a place with little to no requirements. Conversely, if you set the policy requirement too low, you are more exposed to risks as the owner.

Can a Landlord Require a Tenant to Obtain Renters Insurance?

In some areas, local and state laws may affect whether or not you can require tenants to have renters insurance. For example, in some jurisdictions, renters insurance may not be allowed unless the lease specifically says renters insurance is required.

However, other states may allow landlords to make renters insurance a mandatory requirement for all tenants. It's essential to be familiar with the laws in your area before implementing a provision for renters insurance. Additionally, consulting with an attorney can ensure that your lease language is legally sound and compliant with applicable laws.

Even without being able to make it a legal requirement, there are still ways for a landlord to encourage their tenants to obtain renters insurance. One option is offering deals or discounts with specific providers. You could also include language in the lease explaining the benefits of renters insurance.

In addition, conducting informational meetings or providing written materials about the importance of protecting one's personal property can aid in educating tenants about the value of obtaining renters insurance. Ultimately, although you may not be able to legally require it, there are still steps you can take to encourage tenants to protect themselves with renters insurance.

Why Renters Insurance Is Important for Both Landlords and Tenants

As a landlord, you have to consider the potential risks and liabilities associated with renting out your property. While it may be tempting to believe that these risks are solely the responsibility of your tenants, in reality, they can also have legal implications for you as the property owner.

This is where renters insurance comes into play. Not only does it offer protection for your tenants’ personal belongings in case of theft or damage, but it can also provide personal liability coverage in the event of an accident on the premises. For landlords, this gives you an added layer of protection against potential lawsuits or financial loss.

Many renters mistakenly believe that their landlord's insurance policies cover their personal belongings in the event of damage or theft. However, this is rarely the case and as such, tenants would benefit from investing in renters insurance.

One of the most significant things renters insurance covers is a tenant’s personal property. If a rental unit catches fire or gets burglarized, renters insurance will reimburse the tenant for the value of lost or damaged belongings. Most renters insurance policies have a limit of $10,000 to $30,000 for personal property coverage, which should be enough to replace most people's belongings. Tenants can also purchase additional coverage if they have high-value items, like jewelry, antiques, or art.

Another important reason for a tenant to have renters insurance is liability coverage. If someone is injured while on the property, they could sue the tenant for medical expenses, lost wages, and pain and suffering. If the tenant is found liable, renters insurance will pay up to the limit of their policy—usually at least $100,000.

Having renters insurance gives the tenant peace of mind knowing they'll be financially covered if something happens on the property.

Renters insurance does not replace a landlord's own insurance policy; rather, it works in conjunction with it to provide comprehensive coverage for both parties. Before renting out your property, make sure to discuss renters insurance with prospective tenants and consider including it as a requirement in your lease agreement.

How Can Landlords Protect Themselves from Potential Liability?

Some common reasons for liability lawsuits include wrongful evictions, failure to refund deposits, and not maintaining the property leading to loss, damage, or injuries.

While you can’t prevent all of this from happening, you can protect yourself from potential liabilities by taking the following steps:

• Implement adequate tenant screening protocols.  Look for those who get along well with others and will take care of your property as if it's their own.

• Requiring tenants to have renters insurance coverage helps decrease the chance of facing liability charges for damages caused by your tenant.

• Properly maintaining your rental property is one of the best ways to protect yourself from potential liability as a landlord. This includes regularly inspecting the property for any damages, promptly making necessary repairs, and keeping the property clean and livable. 

• By addressing problems immediately, you reduce the likelihood of a lawsuit. If a tenant sues you and can demonstrate that they communicated their concerns to you, but you neglected to resolve the situation promptly, resulting in an injury or damage, you could be held liable.

• Keeping up-to-date records gives you the paper or digital evidence that proves you have done your job as a landlord. These records include receipts for repair jobs, tenant maintenance requests, inspection reports, and eviction notices. 

• Carry liability coverage. You can do everything right, including maintaining the property and handling any concerns immediately, but accidents happen. Your liability coverage protects you against these situations by covering legal fees, medical costs, and other damages you might be liable for in a lawsuit. Obie is one insurance brokerage that can help you find the quality coverage you need by getting an instant quote online. 

• Registering your real estate investment as an LLC separates you from the business. Since an LLC is a legal entity, you are generally not held personally liable as the landlord for any damages. 

Where Can Tenants Obtain Renters Insurance?

Renters insurance is a valuable asset for tenants, providing them coverage for their personal belongings and liability. To obtain coverage, tenants have a few options.

First, they can contact an insurance company and purchase a policy. Alternatively, they can work with a broker or independent agent who can shop around for the best rates on their behalf. Some landlords may even offer renters insurance as part of their lease agreement through their leasing agency or property management company. Also, tenants should ensure that any high-value items, such as jewelry or art, are properly insured under their policy.

By taking the time to choose their renters insurance coverage carefully, tenants can protect themselves from potential financial losses and disasters while helping you, as a landlord, protect your real estate investment.