Why Landlords Should Require
Renter’s Insurance
Learn the importance of requiring insurance from tenants and how it protects both parties.
Introduction
Requiring renter’s insurance benefits both landlords and tenants. It protects tenants’ belongings from fire, theft, or water damage and includes liability coverage for accidents. This reduces disputes, minimizes financial risks, and promotes responsible tenancy, helping landlords safeguard their properties with minimal additional costs to tenants.
Understanding the Various
Insurance Products
Reasons of Renter's Insurance Lease Term
Tenant’s Ability to Pay Rent
With renter’s insurance, tenants have an extra safety net that helps limits their chances of experiencing financial crisis in the event of a loss—For landlords, this means crises are less likely to result in late and/or missed rent payments.
Risk and Liability Reduction
Requiring renter’s insurance reduces legal risks and costs by covering a broad range of tenant liability claims. Insurance payouts are also often easier to access than court-awarded damages.
Protection for Neighbors
Renter’s insurance can cover damages one tenant’s actions might cause to neighboring units, providing additional protection for the entire property and its community–A neighboring tenant can sleep easier knowing neighboring units are likewise insured.
Increased Resources for Repairs
Just like with auto insurance, renter’s insurance increases the available resources for repairs and damage mitigation, even if the tenant could potentially pay out of pocket.
Forward-Thinking Tenants
Requiring renter’s insurance can attracts responsible tenants who value stability while deterring less responsible tenants.
Master Policy
A master insurance is an insurance policy taken out by a landlord that provides coverage for a building or property, homeowners association, or property management group. It typically covers structural damage, communal areas, and liability, but not individual tenant belongings. Because they provide blanket protection on a per-unit basis, master policies can be an effective alternative, or supplement, to requiring tenants to carry renter’s insurance.
Surety Bonds and Security Deposits
Security deposits are a sum of money paid upfront by a tenant to a landlord or property owner as a safeguard against damages, unpaid rent, or other liabilities during a rental agreement. Once the lease ends, the deposit is typically refunded, provided the property is in good condition and all terms of the lease have been met. By comparison, bonds work by requiring tenants to pay part of a security deposit amount to a third–party bond company, which agrees to pay for damages up to the security deposit amount. Bonds are not insurance policies though—When a bond company pays out to a landlord, it will look to recover the cost from the tenant.
Fees in Lieu of Deposits
Some states, including Washington, allow landlords to charge monthly nonrefundable fees instead of security deposits—Think of it as a risk surcharge, or insurance premium. (Note, this is legally distinct from one-time nonrefundable application, admin, and cleaning fees). These fees provide immediate cash flow and reduce administrative burdens. Where applicable, landlords can also use the fee revenues to buy bonds, insurance, and other comparable products to help offset the risk of tenant-caused damage to their units.
Benefits of Requiring Renter's
Insurance and Similar Products
Enhanced Tenant Stability
Requiring renter’s insurance helps tenants cover unexpected costs, reducing missed rent and evictions. The reduced risk can also allow landlords to accept smaller deposits, making rentals more accessible and reducing vacancies. Other products like master policies, bonds, and fees in lieu can have similar benefits, particularly when they are presented as a set of options.
Mitigated Risk of Loss
These products also help mitigate the risk of loss to a landlord and their property. For instance, when a tenant causes damage, renter’s insurance can cover the repair costs, mitigating a landlord’s likelihood to need to file high-deductible claims on their own policy. If insurance proceeds are available relatively quickly, then repairs can be completed promptly and with more certainty, especially compared to legal action for attempting recovery of losses after the fact.
Legal and Financial Protection
Insurance products can also help redirect liability claims away from landlords and tenants, reducing legal risks and associated costs for both parties. It’s also worth noting that, in Washington State, a tenant’s failure to maintain renter's insurance can serve as potential just cause for eviction if it has been made a term of the lease. However, it is crucial for landlords to consistently track and enforce these related policies to ensure compliance and protect their legal standing.
Why Lower Rents with Insurance
Requirements Benefit Everyone
Like allowing lower deposits, requiring renter’s insurance allows landlords to lower rents slightly while maintaining profits, as reduced risk benefits both parties. Tenants gain financial protection, and landlords ensure stable rental income. Over time, this approach promotes a more secure and profitable rental portfolio. In some cases, mortgage lenders also offer discounts and other incentives for high proportions of tenants carrying insurance.
Disclaimer
This article is provided for informational, educational, and marketing purposes only and does not constitute legal advice. The content is current as of its publication or last review and may not reflect the latest legal developments. Do not rely solely on this information—consult a qualified attorney regarding your specific situation.
Understand Your Legal Options with Cascade Counsel
Cascade Counsel helps landlords establish and manage renter’s insurance requirements and other risk management policies. Whether it’s enforcing renter’s insurance requirements, setting up a master policy, or considering alternatives like surety bonds or fees instead of deposits, we provide clear guidance to ensure these strategies comply with the law and support your business goals.
Contact Cascade Counsel today to learn more about safeguarding your rental properties with renter’s insurance and other protective measures.
