09 Jun The Importance of Renter’s Insurance
As a team of property management professionals, Metropolitan Property Services takes a great deal of pride in providing our clients the best possible service as well as advice. One area we are often asked about is renter’s insurance and that’s why we wanted to address this subject here on our blog.
Please note that we were inspired by (and are citing) AppFolio’s March newsletter for this post. If you aren’t familiar with AppFolio®, it has some of the best property management software on the planet. Their newsletters are terrific as well.
At Metropolitan Property Services we insist on all of our tenants having renter’s insurance in place before they move in. We feel strongly about this and wish our rent laws allowed us to put this in our CAR leases as a requirement. Renter’s insurance protects the tenant as well as the property owner; and it is a very affordable coverage.
In 2011, there were 95,500 apartment structure fires totaling nearly $1.2 billion in direct property damage (according to National Fire Protection Association statistics). But the startling fact is that according to the Insurance Information Institute (III), most renters assume their landlord’s policies cover them. As a result, only 31% of U. S. apartment dwellers buy rental insurance, as revealed by an III survey.
The fact that this few tenants carry rental insurance can pose serious headaches for you as a property management firm. The National Multi Housing Council (NMHC) stated that property risk costs “remain by far the largest portion of total cost of risk for property managers, approaching 70% of the total cost of risk.”
So you might be wondering how to address this. We feel there are two ways to approach the problem.
First, you can include a clause in your leases mandating tenant liability insurance. The NHMC 2012 Apartment Cost Risk Survey reports that 84% of apartment companies say they require residents to buy renter’s insurance. That’s up from 62% in 2011. However, of those who said they required insurance, 40% said they don’t mandate it on all of their properties.
One perceived downside to requiring insurance is that it could shrink your pool of prospective tenants, but in the long run the financial security of having all your tenants covered might be worth the risk.
If you decide not to require coverage, the alternative would be to educate your tenants on the importance of having insurance. Many tenants aren’t aware that such coverage exists or how it could protect them from serious financial consequences. One way to encourage your tenants to secure insurance is by providing them with a brief information sheet.
Key points to cover would be:
- The tenant is not covered for personal property loss through your umbrella property insurance policy.
- Tenant liability insurance also protects them from other areas where they are exposed to liability such as accidents in the apartment.
- If the tenant is found to be responsible for a fire, they could be held liable for damage to the entire building, not just their personal belongings.
- Renter’s insurance could cover the cost of temporary housing if they are forced out of their apartment.
- The cost of a renter’s policy is relatively low. For $10,000 in personal property coverage and $100,000 in liability coverage they would expect to pay just over $100 a year. Even with higher limits the cost of insurance is likely to be less than $200 annually.
Whether you mandate coverage or simply encourage it, you’ll be doing your tenants a service by making them aware of its importance.
At the end of the day, it’s important to make sure that all bases are covered to avoid liability. Many property owners want to experience the benefits of real estate investment, but don’t have the time or know-how to effectively manage their properties.
Our team at MPS offers clients just such a service. Professional property management is our ONLY business. If you are a property owner seeking a professional property management company, we’d love to speak with you.
Please give us a call at (310) 220-4495 or visit our website to learn more about Metropolitan Property Services! We are always happy to consult, free of charge to offer you advice about how to proceed with your home or property.