Alternatives To Requiring Renters Insurance – What About Tenant Compliance? Img ©
What alternatives are there to mandatory renters insurance programs, and do they stack up? That depends on exactly what risk you’re trying to manage and how much risk you’re willing to absorb.
Chances are strong that no matter how many units you manage, you have some kind of property management software. Most of those software packages make at least a passing nod to the idea of requiring renters insurance, but all they do is give you information. They don’t help with compliance.
The only thing that helps with compliance is a properly written lease. It’s important to keep in mind that no matter what alternatives you consider, tenant-purchased insurance coverage is usually the option that gives you the most protection.
Alternatives To Requiring Renters Insurance – Master Policy
We’ll use someone with a few units in Brooklyn as an example. If your tenants have Brooklyn Renters Insurance, their property is protected and you’re protected against the risk of losses caused by tenants. But you don’t care about their personal property, because you don’t own it. If you have a master policy program in place, it will generally offer liability coverage for the tenants for a set fee every month, which you can simply collect with the rent.
That’s all well and good, and it protects you from some of the most common damage caused by tenants such as smoke, fire, water, and explosion. There’s also no risk of an insufficient pool of capital to pay for the loss (see below). But you’re potentially exposed in two significant ways. First, if you make an accounting error and the premium is not paid or not paid timely, there may not be coverage. Given that you aren’t personally writing the check to whoever has underwritten the master policy, this is a potential risk.
Additionally, when there is a fire or other loss, tenants often are misinformed as to who is responsible for their property. They hear the word “insurance” in reference to a master policy, and they assume that they’re covered. Or worse, they assume that you as the property manager are somehow responsible for their contents. This is a common misconception, and it’s a misconception that seems to rear its head every time the insurance industry thinks that it’s been slain. A master policy falls under alternatives to requiring renters insurance, but it’s better as a backup for those who let their renters insurance policy lapse.
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Alternatives To Requiring Renters Insurance – Loss Recovery Fund/Waiver Program
You can require in your lease that any tenant who doesn’t have renters insurance gets charged a fee every month, due and payable as additional rent. This fee, or a portion thereof, then goes into a fund that’s used to pay for losses. The inherent problem is that you’re responsible for managing that fund and there is no recourse to anything else – the fund itself is not insured. If there’s a loss on day one of the program, the pool of money will not be sufficient to cover the loss, and you’re back to looking for your own insurance to cover it – exactly the situation you were trying to avoid in the first place.
Additionally, with a loss recovery fund or insurance waiver program, you still run the risk of tenants thinking that you’re responsible for contents, or that somehow they’re buying insurance from the waiver program. No matter how well you disclaim that concept, some portion of your residents will still neglect to read the entirety of the description of the waiver program and therefore assume that they have coverage of some kind.
You are, of course, generally not responsible for their contents, but you don’t really want to have that fight with your residents. When there’s a loss, you want to be able to recover the cost of the loss quickly, preferably while getting the resident moved into another unit that you manage so that you can continue to collect rent from them. That situation is nearly always preferable to losing the tenant and having to fill that vacant unit with a new resident.
Alternatives To Requiring Renters Insurance Should Be A Backup
There are a wide variety of things you can write into your lease as alternatives to requiring renters insurance, but they’re never going to take the place of every tenant maintaining Brooklyn Renters Insurance. You should be tracking, via additional interest designation, the status of tenant policies. Effective Coverage offers a platform that handles this automatically, and notifies you if there is a lapse in coverage.
It’s unfortunate, but some residents will show you a shiny new policy, and then cancel it the next day. Additional interest tracking of renters insurance prevents that. It shouldn’t, of course, be necessary, but there’s always a few people. Whatever you’re using as an alternative to mandatory renters insurance is there to protect against that situation, not as a primary manner of protecting you and your organization from risk.
The national average price of renters insurance is just $187.00, according to the III. That works out to as little as fifteen dollars per month. The vast majority of families can budget renters insurance easily at those prices.
Additionally, it's important to note that renters are at a significantly higher risk of experiencing loss than homeowners. Renters occupy roughly one third of total housing stock in the country, and yet they are fully fifty percent more likely to experience theft than homeowners, according to the Bureau of Justice Statistics.
It only costs a few dollars a month to protect your family, and this cheap renters insurance is a great way to mitigate the additional risks that come with being a renter.
This means that most people not only are able to afford it easily, but that they’re often surprised at just how affordable it is. While you can’t require that they buy coverage from a specific company, you can steer them towards your partner company. That makes it easy for you to get notifications of new policies, saves you from processing faxes and all of the paperwork that comes with an insurance policy, and helps you to be sure that your tenants have the coverage they say they do.There are good alternatives to requiring renters insurance that can help protect you when a tenant’s policy lapses, but none of them are actually a substitute for tenants having their own policies on a large scale. To learn more, contact Effective Coverage. Your residents can buy policies in just sixty seconds online, with instant notification to you as part of the program.
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Photo Credit: Umjanedoan Woodfall's Law of Landlord and Tenant CC BY 2.0