Mind Your Business – Tia’s Tips for Better Rental Management
By Tia Politi, Property Manager for Acorn Property Management
(Many thanks to Brooks Hayes Insurance for fact-checking services for this article.)
I am often asked by rental owners how their tenant’s renter’s insurance can help them, or how it helps their residents. While there is some variation in policy coverage, two of the best reasons to require or encourage your residents to obtain it are: accidents and liability coverage.
Accidents happen. I had a tenant last year who accidentally started a kitchen fire. The damage claim exceeded $70,000 for damage to the home and her belongings. Without renter’s insurance, my owner’s insurance would have kicked in, but the resident would have been potentially liable for the deductible and any premium increase associated with the accident. Also, the owner’s insurance company likely would have sought to subrogate the claim to her. Instead, the home was restored and her damaged belongings replaced.
During a recent windstorm, a large tree fell on one of our resident’s homes. The owner’s insurance is covering the cost of repairing the damage to the home, but not damage to the resident’s belongings or car. Fortunately, the resident had insurance and will be made financially whole.
One of my co-workers lived in a rental that burned up while they were away on a trip. It was a tragic event and they lost their beloved family dog as well as irreplaceable family mementos, but her family could have lost much more if they did not have renter’s insurance. Their insurance company paid for their hotel and temporary housing while they located a new home, and gave them money to purchase replacement clothing and household goods. Without renter’s insurance their distress would have been compounded exponentially.
A former owner-client had their insurance attached by a claim from a neighbor. Their tenants’ dog had previously been considered friendly, but one day a neighbor girl who had interacted with the dog many times without incident, leaned down to pet the dog, and without warning it bit her in the face. She required extensive medical attention and plastic surgery. The residents had no renter’s insurance so the entire claim went against the owners’ insurance resulting in a huge premium increase. If the residents had renter’s insurance their policy would have been attached first, possibly eliminating any involvement of the owners’ insurance company. While the insurance company tried to subrogate to the tenants, they were very low income so there was nothing to go after.
Rental owners may require their residents to have renter’s insurance, but may not lawfully require a tenant to obtain renter’s insurance if their combined household income is equal to or more than 50% of the HUD median for that area. Visit www.hud.gov to determine what the income threshold is for your location. Although owners may not require insurance in some cases, nothing says we can’t still strongly recommend it. Many times when I explain to a tenant why they should have it, they choose to get it anyway to protect themselves. And it’s cheap – $7 to $20 per month on average added to an auto policy. Stand-alone policies may also be purchased.
Another benefit to tenants is the theft coverage that comes with a renter’s insurance policy. My daughter’s renter’s insurance had lapsed for a short time, when her laptop was stolen out of her boyfriend’s car. His auto insurance did not cover that, but her renter’s insurance would have. Thefts from the dwelling unit itself may also be covered.
One of my own tenants made a claim on her renter’s insurance policy when there was an electrical problem with my rental that caused the power to surge dramatically, frying out her computer and the control panel for her washing machine. For some reason the utility company reimbursed me for the electrical repair to the home caused by their faulty transformer, but not my tenant’s damaged goods. She wasn’t interested in a legal battle with them and instead received reimbursement from her renter’s insurance policy.
Kids throw baseballs through windows, people think their car is in reverse when it’s it drive, tenants forget to lock doors, previously friendly dogs bite people, candles set houses on fire – life is decidedly unpredictable, that’s why we should all be insured and why residents should be too.
What is required to mandate renter’s insurance?
- If you own your property free and clear and have chosen to not be insured, you may not require that your residents be insured.
- If you do plan to require your qualifying tenants to have renter’s insurance, that requirement must be disclosed in writing during the application process (and the instances when it would not be legal to require it summarized in writing also), or with existing month-to-month tenancies send a Notice of Change in Terms.
- For a fixed-term lease where you had not required it at the outset, you must wait to implement your requirement until the expiration of the lease; however, you can and should send the notice of change in terms before the lease expires so that you may lawfully require it upon expiration or prior to signing a new lease.
- You may require your tenant to name you as an “Interested Party” on the policy for the purposes of notification in failure to maintain the policy, reduction in coverage, or removal of you as an interested party.
- You may require that residents maintain a minimum of $100,000 in liability coverage as part of that policy.
- Requiring renter’s insurance when it would be illegal to do so may incur a penalty of the tenant’s actual damages or $250, whichever is greater.
This column offers general suggestions only and is no substitute for professional assistance. Please contact your own insurance agent for advice related to your specific situation.