November 21, 2012
The Challenges and Benefits of Tenant Insurance
As a landlord or property manager, you’re vigilant about your own insurance policy for the buildings under your care. But ensuring that your tenants are also covered is an important step to take toward protecting yourself from unnecessary costs and liability.
Most standard multi-residential leases include a clause reminding tenants that their belongings aren’t covered by the landlord’s insurance, and advising them to obtain a renter’s policy. But this doesn’t guarantee that they’ll take the advice.
PropertyVista has put together some key information about how to encourage tenants to get coverage, and why it pays to enforce tenant insurance requirements.
Overcoming the Challenge
Every tenant is supposed to have insurance, but the fact is that very few comply. According to the Insurance Bureau of Canada, about half of all renters don’t take out any kind of tenant’s insurance. Too often, renters mistakenly think they don’t need insurance, either because they underestimate the value of their belongings, or they simply haven’t thought through the consequences of damage or theft within their units.
Even tenants that do have a policy in place are often underinsured, because they’ve only considered insuring their belongings; they haven’t given any thought to liability if they’re held responsible for any damage to your property.
In an all-too familiar situation, tenants are surprised to learn that the landlord’s insurance doesn’t cover their belongings in the event of fire or water damage. They also tend to be unaware that if they cause a fire or leak, they’re legally responsible for the harm caused to any part of their building, and to others who live or visit there—and that this is the case even if the landlord has fire insurance.
The best way to mitigate legal or financial fallout, and to get tenants to comply with insurance requirements, is to make sure they’re aware of their responsibilities. Once they know the risks involved with being uninsured, tenants will be much more likely to cover their bases.
On your tenant portal, include a link to the Insurance Bureau of Canada’s information on the need for, and benefits of, tenant insurance. And make sure that applications are also aware of it. You may narrow the pool of prospective tenants by insisting that they be insured, but in the long run, you’ll be able to protect yourself and your property, and ensure a more responsible group of residents.
Tenant Insurance Benefits
Of course, the benefits of insurance are clear for tenants. They can avoid messy, costly legal battles by acquiring liability coverage, and will be able to replace their possessions in the event of loss or damage.
But property managers also benefit greatly by having tenants that are insured. Consider the following advantages:
- Financial protection. When tenants are insured, if they lose their possessions through fire, water damage or theft, they won’t find themselves in a financial predicament that leaves them unable to pay rent. Their insurance protects your income stream.
- Loss protection. With adequate coverage in place, your tenants’ policies will cover the costs of repairing any damage to the unit or surrounding units, protecting you against losses.
- Reduced insurance premiums. When tenants’ policies extend to liability coverage, you won’t have to make a claim on your own insurance to repair any damage or recover any losses inflicted on the building at the fault of your tenant. As a result, you’ll be in a position to keep your commercial property insurance premiums to a minimum.
- Reduced risk of legal action. Tenants that are adequately insured will be in a position to cover any loss or damage for which they’re responsible. By contrast, those that aren’t properly covered are apt to look for ways to blame the landlord (e.g., claiming negligence) or the building (e.g., citing faulty wiring or a bad furnace) for damages, to avoid being held financially responsible.
- Reduced operational expenses and hassle. When tenants are insured, it makes for a much smoother process. You’ll save time and money by not having to go after them to recover damage repair costs.
Ensuring Your Protection
Do you have a program in place to help mitigate the risks associated with damages to your property or to tenants’ belongings? Have you found a way to make certain that all of your tenants have adequate insurance?
PropertyVista will soon be announcing a product that makes tenant insurance compliance easy. Stay tuned for details on how you can protect your property in just one simple step. In the meantime, please see our plans and sign up for an account.