Why is Renter's Insurance Required by some Landlords?
17 Apr 2020 • 2 min read
Landlords Require Renters Insurance, but why?
I am speaking in generalities, but for conflicts between landlords and tenants, landlords would much prefer to deal with insurance companies than tenants for one simple reason. Insurers have deeper pockets. If they want to recover money from a loss they’ll have an easier time dealing with a company with financial backing.
This may seem cynical but it basically creates a middleman between the landlord and tenant that allows damages to be recovered. The moment you are sued by a landlord, your insurance company steps in to deal with it, whether it was your fault or not. So although your property is protected, your landlord cares about liability protection.
What does this mean for me?
This means that liability insurance, which has a specific legal definition, protects you from something that could seriously damage you financially. Losing a laptop is one thing, someone breaking their leg at your party and claiming you're liable for hundreds of thousands of dollars is entirely something else.
And keep in mind insurance does protect against mistakes. Unintentionally leaving a pan hot on the oven which catches fire and burns up your stove causing smoke damage is covered. If we look objectively at this situation, it’s difficult for everyone involved.
- You feel bad because you made a small mistake that made your apartment uninhabitable.
- Your landlord probably is thinking about how on earth to get all the appliances replaced that are destroyed and how to get the strong smell of smoke out of the walls.
- Your insurance company is thinking, this is what we’re here for (maybe not all insurance companies, we certainly think this way!)
This policy intends to protect a variety of losses, but the part landlords care about is liability.
If this is so useful why doesn’t the landlord buy it?
There are no bad questions here!
The insurance industry and regulations generally don’t allow you to buy policies on behalf of someone else. Consider the idea of buying a life insurance policy for someone else, while that is an extreme example it illustrates the idea that if you don’t have an interest in something (like owning property, someone else’s life, etc...) you really can’t be the beneficiary of a policy. Just to recap insurance, it works by pooling money and some entity deciding based on your policy what you are entitled to in the event of some loss. It makes sense as a community to prevent someone taking a life insurance policy out on another random person.
Another point, landlords already have protection for their property under most circumstances. And if they are a professional landlord then their insurance policy might require tenants to have an insurance policy as well. Now the landlord’s insurance company has another insurance company to collect against when that other party is liable, rather than going after a tenant. And since we’ve determined that insurance companies are only able to protect a policy holder’s direct interests such as liability, legally only the tenant can buy it.
Make sure you get enough Liability Cover to appease your Landlord
So you’ve bought your renters insurance (hopefully at Goodcover.com), and you're deciding your liability coverage, we recommend you buy enough to appease your landlord’s conditions, but more never hurts. With Goodcover the difference between $100,000 and $500,000 liability limits on a $6.15 a month policy is $6.87, so only $0.72 extra (These are estimates and averages and are not exact depending on other factors), but lots of peace of mind.
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