As we talk about landlord tips and how to protect your investment, we want to continue discussing insurance. Most investors want to know if it’s important for their renters to have a renter’s insurance policy in place, and what that does to protect the owner.
Renter’s Insurance and Liability
We always suggest that tenants get a renter’s insurance policy with as much liability protection as possible. Most will go up to $500,000, and there’s not a big price difference when you go from $100,000 in coverage to $500,000 in coverage. All of the tenant’s contents are insured and liability coverage is provided. It’s an inexpensive policy that protects both tenants and landlords.
Here’s a scenario to consider: A tenant may stop up a toilet or create a flood by walking away from a running sink, or maybe the hose will break on the washing machine, which the tenant owns. When the property is flooded with three inches of water, there will be damages that need to be paid. A renter’s insurance policy will cover damage caused by the tenant, and that protects the owner, as a third party.
The renter’s insurance policy can pay for the owner’s damages when a tenant-caused problem happens or there’s an accident for which the tenant is responsible. Make sure the lease is consistent with the policy. You want to have the names the same on the lease and the insurance policy, as well as the property address and other details.
What Renter’s Insurance Will NOT Cover
Imagine if a tenant moves out, and as the landlord you have a security deposit. But after your inspection, you realize that there is crayon on the walls, your new carpet which was only a year old was ripped up, and the place is just a mess. Maybe the stove is broken and the window blinds are all bent. The tenants didn’t take a baseball bat and vandalize the place or steal appliances, but there’s $13,000 worth of repainting and re-flooring and repairs to do. The tenants simply lived roughly, and the security deposit is only $1,000. The renter’s insurance policy won’t cover those additional costs, and neither will your landlord policy. When you lease your home, you relinquish the property to the tenants to let them live there. No insurance policy will cover a style of living.
Additional Insured and Additional Interest
Owners are often encouraged to have the renter put the owner or the property management company on the renter’s insurance policy as an additional insured or interest. Every company handles this differently. Some companies have additional interest for cancellation purposes only. In that case, you’ll be notified if the tenant cancels the policy or it’s no longer in force. It’s an extra layer of protection to be added to the renter’s policy as an additional insured or an additional interest, but remember that if a large claim occurs and there’s a lawsuit, you’re still going to be named because everyone will be named.
Renter’s Coverage and Being Displaced
Many renter’s policies will cover the rental payments if the tenants are displaced due to fires, floods, or other claims. If a tenant has to move out but the lease isn’t canceled, the policy will handle the costs of rent payments or relocation. Make sure this coverage is in place. It will cover the additional expenses that are incurred when a tenant has to live somewhere else while the property that’s being rented isn’t available. Many landlord policies also have loss of rent coverage and as long as it’s a covered loss, that would kick in as well. Right now, there’s an issue with vacancy times. Most policies won’t cover vandalism claims if the property is vacant 30 days prior to the claim. Some companies even say 60 days. So, you have to watch your vacancies.
Be careful with illegal substances, too. If a property is inhabitable because of an illegal substance that was there, your insurance policy probably won’t cover it because they don’t cover illegal acts. Pets come with liability, too. When you have a dog in your property, you are legally liable for that animal and everything it does. Many insurance policies won’t cover vicious breeds. Renter’s policies won’t cover them either. You can find a company that does cover them, but those insurance rates are going to be a lot Landlord Tips: How Can Renter’s Insurance Protect Your Indianapolis Rental Property?higher.
It’s important to talk to your insurance agent and ask a lot of questions. If you have any questions about landlord insurance or renter’s insurance, please contact us at ES Property Management. We’d be happy to talk to you more about property management in Indianapolis.