Why Do Landlords Require Renters Insurance?

Whether it’s protecting personal belongings from fire or theft or serving as a source of liability insurance if a guest gets hurt inside the home, renters insurance can provide plenty of benefits for the tenant.

But can a landlord require renters insurance? The short answer is yes. Here’s a closer look at the nuances of this coverage and why a landlord might want to make it mandatory.

Can a Landlord Require Renters Insurance in All States?

In most states, the answer is yes. They can require renters insurance. (However, Oklahoma, Virginia, and Oregon have regulations in place.) What’s more, landlords can usually determine a minimum policy amount that their renters must carry. When that happens, the landlord will likely be more concerned about the amount of the liability coverage a tenant has, because that can have a financial impact on the landlord if, say, damage from a fire or an overflowing bathtub occurs. They may be less concerned about the amount of personal property coverage that a tenant has in their renters insurance policy.

It’s important to note that while landlords are generally allowed to require tenants to have renters insurance, there are no states that require renters insurance. However, this could change, so check your state’s laws.

To get a good understanding of what a landlord requires for the apartment you want to lease, be sure to read the lease language carefully. It may contain a clause, for example, that requires a new tenant to provide proof of renters insurance within a certain period of time. If more clarity is needed, ask the landlord for an explanation before signing the lease.

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Reasons Why Landlords Require Renters Insurance

Mandating renters insurance can be part of a landlord’s tenant screening process, just like checking a renter’s credit scores may be. Buying and maintaining a policy could be a sign that they’ll be able to consistently pay the rent and are willing to take responsibility for the rented space and their belongings.

Requiring this type of coverage could also lower a landlord’s overall liability. If a tenant doesn’t have an insurance policy and some of their belongings are stolen, they may decide to sue the landlord to get the money to replace those items.

Similarly, if a tenant or their guest is injured on the property, they may choose to bring the landlord to court to help cover medical bills. It’s also possible that, if someone gets injured in a rented space and doesn’t have renters insurance, the hospital caring for the injured party might sue the landlord. Even if the landlord’s policy covers the hospital bill, this could result in higher insurance premiums for the landlord.

Here’s a related possibility: Suppose there’s a fire in an apartment complex and, because of smoke damage, tenants need to temporarily find other places to live. Tenants without renters insurance may not be able to pay for temporary lodgings and may attempt to get those funds from the landlord. In some states, the landlord may, in fact, need to provide relocation benefits for tenants who don’t have their own coverage. So, requiring a policy can shift part of the financial burden from the landlord to the affected tenants.

Continuing with the fire scenario, if it’s one that was accidentally set by a tenant and it damaged several parts of the building, the landlord’s insurance policy may cover the costs, minus the deductible on the landlord’s policy. That can help to cover cleanup and remodeling expenses, but the deductible can be significant, and the tenant’s renters insurance may cover the dollar amount of that deductible. This reduces the landlord’s out-of-pocket expenses, which can be a real plus for that landlord.

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Proof of Insurance

If a landlord requires renters insurance, they may ask for proof of existence. Perhaps they’ll want to see a statement from an insurance company or a copy of the policy itself, though they may also simply take a tenant’s word for it.

Sometimes, a landlord will want to be listed on the policy as an “additional interest.” When that happens, the landlord will be notified if the policy coverage lapses because of nonpayment or because the tenant cancels the policy.

Note that naming someone as an “additional interest” is different from naming them as an “additional insured.” The second term refers to people who are also covered by a tenant’s policy, perhaps a roommate or partner.

Securing a Policy

When deciding what policy to buy, it’s important to factor in the value of personal belongings that need to be covered and what is affordable. Different insurance companies offer different coverages at differing price ranges. After determining the value of personal belongings and budgetary constraints, it may be time to compare policies and see which ones fit in your budget.

According to recent data, the average renters insurance policy costs between $15 and $30 per month. Compare that to the cost of replacing personal belongings, which would typically be much higher. And that’s not even factoring in the benefits of having liability coverage and additional living cost coverage, such as temporary lodging if you need to leave the rented space.

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Actual Cash Value Versus Replacement Costs

Some policies pay out the actual cash value of lost or damaged belongings, while others cover the full costs of replacing what was lost or damaged.

For example, if a three-year-old laptop was stolen from a tenant’s apartment and that person’s policy uses cash value when reimbursing the tenant, the amount would be what the laptop originally cost minus any depreciation that took place over that three-year period. If the policy is a replacement cost one, then the tenant would be reimbursed what it would cost to get a similar laptop today.

Review the policy’s deductible. This is the amount that the policyholder is responsible for before insurance coverage applies. Typical deductibles fall around $500 or $1,000, although they may be higher. Some policies may offer deductibles that are a percentage of the policy’s coverage amount.

The Takeaway

Renters insurance can provide financial security to tenants in the event their property is stolen or damaged. It can also help lower a landlord’s overall liability and financial burden. Though there’s no federal law mandating renters insurance, landlords in most states are able to require tenants to have it. Before signing on the dotted line, double-check the lease agreement to confirm whether you need to purchase a policy. A typical renters insurance policy costs around $15-$30 per month, but coverage and cost may vary.

Looking to protect your belongings? SoFi has partnered with Lemonade to offer renters insurance. Policies are easy to understand and apply for, with instant quotes available. Prices start at just $5 per month.

Explore renters insurance options offered through SoFi via Experian.

FAQ

Can a landlord require renters insurance?

In most states, landlords can require tenants to carry renters insurance. Landlords can also typically specify a minimum amount of coverage. However, no state currently requires renters insurance by law.

Why do landlords require renters insurance?

Landlords may require renters insurance to reduce their potential financial and liability risks. A policy can help cover a tenant’s personal belongings, liability for accidental damage or injuries, and additional living expenses if the tenant must temporarily relocate after a covered loss. Requiring insurance can also help protect a landlord from some costs associated with damage caused by a tenant.

What proof of renters insurance might a landlord require?

If renters insurance is required, a landlord may ask for a copy of the policy or another document showing that coverage is in place. The landlord may also ask to be listed as an “additional interest” on the policy. This allows the landlord to receive notice if the policy is canceled or lapses.

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Photo credit: iStock/staticnak1983

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