In 2011, there were 95,500 apartment structure fires totaling nearly $1.2 billion in direct property damage, according to National Fire Protection Association statistics. But according to the Insurance Information Institute (III), most renters assume their landlord’s policies cover them. As a result, only 31% of U. S. apartment dwellers buy rental insurance, as revealed by an III survey.
That can pose serious headaches for you as a property management firm. The National Multi Housing Council (NMHC) stated that property risk costs “remain by far the largest portion of total cost of risk for property managers, approaching 70% of the total cost of risk.”
There are two ways to approach the problem.
First, you can include a clause in your leases mandating tenant liability insurance. The NHMC 2012 Apartment Cost Risk Survey reports that 84% of apartment companies say they require residents to buy renter’s insurance. That’s up from 62% in 2011. However, of those who said they required insurance, 40% said they don’t mandate it on all of their properties.
Requiring insurance could shrink your pool of prospective tenants, but in the long run the financial security of having all your tenants covered might be worth the risk.
If you decide not to require coverage, the alternative would be to educate your tenants on the importance of having insurance. Many tenants aren’t aware that such coverage exists or how it could protect them from serious financial consequences. One way to encourage your tenants to secure insurance is by providing them with a brief information sheet.
Key points to cover would be:
- The tenant is not covered for personal property loss through your umbrella property insurance policy.
- Tenant liability insurance also protects them from other areas where they are exposed to liability such as accidents in the apartment.
- If the tenant is found to be responsible for a fire, they could be held liable for damage to the entire building, not just their personal belongings.
- Renter’s insurance could cover the cost of temporary housing if they are forced out of their apartment.
- The cost of a renter’s policy is relatively low. For $10,000 in personal property coverage and $100,000 in liability coverage they would expect to pay just over $100 a year. Even with higher limits the cost of insurance is likely to be less than $200 annually.
Whether you mandate coverage or simply encourage it, you’ll be doing your tenants a service by making them aware of its importance.