We are all concerned with protecting our homes, our families and our belongings, and insurance is a great way to invest in an advanced degree of protection. For example. many Canadian tenants opt for their belongings to be covered by renters insurance – about half of renters in Ontario have such a policy, which covers not the building itself (that is the landlord’s responsibility) but the belongings located therein. Understanding the benefits of renters insurance and what a landlord’s rights are is an important step to knowing your responsibilities are as a real estate investor.
Table of Contents - Can Landlords Require Renters Insurance?
Landlords and renters insurance
Renters insurance is also known as content insurance or tenants insurance. While you as the landlord cover the building itself in case anything happens, the actual contents of your rental property need to be insured by the tenant if they want any sort of protection or coverage. Now, here is the important part – landlords in Canada are allowed to require their tenants to have a policy. You are legally allowed to insert language into your lease agreements that state it as a condition of tenancy. The government does not require any sort of coverage like this, but individual landlords are free to put these policies in place as they see fit.
Tenants are well-served by having these policies. They are relatively inexpensive, especially when compared with full homeowners’ policies, and they give peace of mind that is difficult to match. As a landlord, you’ll share in this sense of security as well, because you can feel confident that your tenants have their protection in the event of any sort of emergency or disaster.
Why landlords should consider requiring renters insurance
There are several reasons why a landlord should consider placing such language in their leases and require this insurance. First, it can help with relocation expenses in the event of a disaster that leaves the unit uninhabitable. In this scenario, landlords in some areas are required to assist get their tenants into temporary housing. That can be a big expense in terms of time and money, so relying on the tenant’s insurance company to assist is good business sense.
These disasters can also have ugly fallout down the road. Let’s say a fire starts and destroys a building that you own, but it was through no fault of the tenant. They are okay, but they’ve unfortunately lost all of their property and did not have content insurance. They may become desperate to recoup some of the value of their belongings, which means that you could wind up in a lawsuit as they seek damages. While you’re likely to win any sort of court altercation like this, it’s easier to take this option off the table altogether by making sure that your tenants are covered against any type of property loss.
Insurance can also help protect all parties against the threat of a lawsuit. A landlord liability policy is unlikely to cover the tenant if they or one of their guests are injured in their rental units, but a renters insurance policy does offer this degree of coverage. This helps guard them against personal liability claims and protects their personal property against damage.
Requiring tenants to have a policy also helps a lot of landlords become more comfortable with being pet friendly. Allowing pets in your units is mostly just good business sense – anything that increases the pool of potential tenants is a sound decision – but if you’re still on the fence, insurance can push you over by removing much of the risk. Your tenants’ policies will cover the potential for damage or injury caused by the pet and take that liability nightmare off of your mind forever.
Finally, having tenants who have their own insurance is a great way to save on your own insurance premiums. If something happened to an insurance-less tenant that you had to cover from your own policy, then your premiums would almost certainly go up. This can lead to a lot of added expense, so it’s best to make sure that all parties have their own policy that will cover any sort of unlikely scenario.
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Other things to consider
While requiring renters insurance is a great way to minimize a lot of your own liability, it should not be viewed as a bulletproof solution. Just because every tenant you have will have insurance does not mean that they’re automatically a great tenant. You should continue to be as judicious and careful when screening tenants as you would at any other time – keeping up these best practices is the best way to make sure you’re finding quality people who pay on time and respect your property that they’re renting.
On that same token, requiring renters insurance does institute a sort of self-selection process. Getting any insurance policy is a prudent and responsible decision, so it can be seen as the mark of a quality tenant. Anyone who is put off by this type of requirement and no longer wants to pursue renting your property likely won’t be missed. Also, there is a financial piece to this – renters insurance is not expensive, so if it represents a barrier to someone’s ability to pay, you probably already have valid concerns about their ability to make rent payments in full and on time consistently.
Renters insurance serves primarily to benefit the tenant who holds the policy, but you have a lot to gain as well as a landlord. You are covering yourself while also buttressing your ability to find quality tenants, for starters. You’re also helping to avoid the possibility of messy legal entanglements down the road. Finally, it’s just good business – having a clause that requires renters insurance in leases means that you’re attracting good tenants who will do right by you. It also creates a level of trust and reliability between landlord and tenant that will only serve to pay dividends.
A landlord's guide to renters insurance
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