As a tenant, have you ever been required to have a renter’s insurance policy? Have you wondered why? Do you understand what it is and how it benefits you?
Tenants are often required to carry a renter’s insurance policy and here’s why. Renter’s insurance covers two areas; liability and personal property. The area that the property management company is concerned with is the liability. The liability portion of a renter’s policy covers damages and injuries resulting from “negligent acts” of the tenant. For example, let’s say Joe Tenant is responsible for shoveling his sidewalk in the winter. One morning, Joe Tenant forgets, declines, or refuses to shovel the snow. Tom Mailman walks by, slips on the ice, and breaks his back. Who are the potentially responsible parties?
First, the tenant’s lease required him to take care of it, but he didn’t so Joe Tenant gets sued. Secondly, the property owner is ultimately responsible for maintaining his property, so Steve Owner gets sued. Lastly, Steve Owner sues the management company to recover his part of the lawsuit, because he paid them to enforce the conditions in the lease to avoid this kind of thing. This is where insurance comes in to play.
We are going to assume nobody carries insurance in this example. Let’s say Tom Mailman sues for $300,000 in damages. If Joe Tenant didn’t carry renter’s insurance, Joe tenant will end up paying for the lawsuit out of pocket. Most people don’t have that kind of dough laying around. So, Tom Mailman gets what he can out of Joe Tenant, let’s say $20,000. Well that still leaves $280,000. So now Tom Mailman goes after Steve Owner. Steve Owner doesn’t have a rental dwelling insurance policy and must sell his house to cover the $280,000. Now Steve Owner turns around and sues the management company to recover his loss. He paid the management company to enforce the lease conditions and avoid this fiasco. Well the management company can only put $50,000 together, goes broke, and then close doors. Well guess what, Joe Tenant’s life savings are gone, the management company is out of business, and Steve Owner is out $230,000. Nobody is happy.
Now let’s back the situation up and implement some proper insurance practices. When Joe Tenant signed his lease, he was required to carry renter’s insurance with a $100,000 liability limit (pretty average). Joe Tenant is responsible and honest and does just that. When Tom Mailman sues Joe Tenant, the renter’s insurance kicks in and Joe Tenant doesn’t pay much, if anything out of pocket. Now Tom Mailman still wants $200,000 and goes after Steve Owner. A quality management company will ensure that Steve Owner has a rental dwelling policy with a liability limit of AT LEAST $300,000. Steve Owner’s insurance then picks up the rest and Tom Mailman is made whole. Nobody loses their life savings, nobody sells a house, and nobody goes out of business.
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