All property managers and landlords in Southern California should be familiar with renters insurance and have a firm understanding of why it should be required for all your tenants. Unfortunately, not enough landlords require it.
Additionally, while it’s smart for tenants to purchase renters’ insurance to cover their personal belonging, many renters still don’t understand the necessity. Notably, the average renter underestimates the value of their personal property, and they don’t realize the true cost involved should their property be damaged in a building fire or other types of disasters.
Therefore, if you are a landlord, property manager, or property owner in California and still are unsure about whether you should require your tenants to have renters insurance, read below for the top reasons why you should require all your tenants to have insurance coverage for their personal property.
Renters Insurance vs. the Landlords Insurance Policy
Renters insurance is similar to homeowners insurance in that it’s designed to insure the cost of replacing items located within the apartment/premises. Renters insurance typically covers the financial cost of repairing or replacing furniture, electronics, cell phones, tablets, TVs, computers, clothing, and in most cases, jewelry, including engagement rings or wedding bands. While it is true that landlords in California are typically required to maintain their own insurance policies, this insurance does not cover the cost of replacing a tenant’s personal property stored within the apartment/premises. Instead, the Landlord’s property insurance covers the structure itself, and the cost of rebuilding or replacing the structure should become damaged.
Renters insurance can cover a wide range of events beyond the negligent destruction of a tenant’s property and damage caused by natural disasters. Specifically, it can cover the losses of a tenant due to their apartment being burglarized. Renters insurance can also cover the cost of liability if someone is injured within your apartment, such as when a guest slips and breaks their leg. Finally, renters insurance can help mitigate the damage caused by a tenant’s pet.
Should Commercial Tenants Have Renters Insurance?
Renters insurance is also used in commercial real estate dwellings. If a landlord is renting out a commercial space, the Landlord is typically required to have a commercial property insurance policy. However, the business owner or tenant of the commercial space is also usually required to have their own small business policy similar to a renters insurance policy to cover the potential losses and liability associated with operating a business on the premises.
Is Renters Insurance Required in California?
Under California Landlord-Tenant laws, there are no specific requirements that renters purchase and maintain renters insurance throughout the entire tenancy. However, that doesn’t mean that landlords can’t require their tenants to purchase the coverage as a condition of their tenancy.
Why Should Landlords Require Renters Insurance?
Some of the primary reasons why you should require your tenants to have renters’ insurance is as follows:
Relocation Costs. Renters insurance will help pay for relocation costs should the building become damaged in a fire or other natural disaster. Specifically, in California, you are responsible for the cost of relocation if the building is damaged in a fire or natural disaster and the tenant can’t continue to occupy the premises or the property otherwise become uninhabitable.
Covers the Tenants Personal Property. As previously mentioned, a landlord’s insurance policy typically does not cover a tenant’s personal property if it is damaged in a fire, natural disaster or is stolen. In the event that a tenant’s property is damaged for whatever reason, they may want to seek recourse from the Landlord, and in most cases, the Landlord’s insurance will not cover the loss. As such, to reduce liability, legal costs, and other expenses, it is in the Landlord’s best interest to require their tenants to have renters’ insurance to protect both parties in these types of situations. However, keep in mind that a renter’s insurance policy will only cover losses up to the maximum of the policy’s coverage. As such, if the tenant’s liability exceeds this amount, you may still be liable for the difference depending on the situation.
Protect Against Damage Caused by Pets. It’s no secret that most Landlords in Southern California prefer not to rent to tenants with pets due to the potential for property damage. Depending on the policy that the tenant purchases, it may assist in mitigating the cost of property damage caused by pets. By requiring renters insurance coverage, you may be more inclined to accept tenants with pets or, in other words, offer pet-friendly housing options, which are always in high demand.
How Can You Require Renters Insurance Legally?
If you decide that you want to require your tenants to have renters insurance and/or business insurance, you must ensure that your real estate attorney drafts the proper terms and provisions in your lease agreement. At a minimum, to ensure the maximum protection, you should state the minimum policy required in your lease agreement depending on whether or not it is a residential or commercial property. You should also make sure that the proper party is named as the Landlord/Owner on the policy, as well as if any additional insured party should be on the renters policy, such as a property management firm. By requiring a renters insurance clause in your lease agreement, your tenants would be expected to have and maintain renters insurance throughout their entire tenancy. In most situations, if a tenant allows their renters insurance to lapse, this would be considered a material breach of the lease agreement and may be legal grounds for eviction should the tenant not reinstate their policy within a certain amount of time.
Overall, renters insurance typically ranges from $10 to $60 per month for a residential apartment in California, a small price to pay to ensure that a tenant’s personal property is protected. As such, in the grand scheme of things, the benefits greatly outweigh the costs. Any tenant that raises a fuss about your renter’s insurance requirement should raise a red flag. Lastly, keep in mind that if you implement a renters insurance policy, this may lower your building’s insurance premium or, in some cases, prevent an increase in coverage after certain claims or events.
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