More and more complexes are requiring that their tenants carry rental insurance for their apartment, condo, or townhome. This increase has created a lot of questions as to the cost, coverage, and value of renters insurance. We have found there are essentially three fundamental questions people want to know:
- What does rental insurance cover?
- How much rental insurance it cost?
- Why do apartment, condo, and townhome complexes require tenants to carry rental insurance?
What does rental insurance cover?
To understand the details of why apartment complexes require tenants to carry these policies, it is first important to understand what the policy covers. There are two main areas of protection that consumers should focus on when deciding their insurance coverages: Liability coverage, and Personal Property Coverage. Knowing the difference and the amount of coverage you want are something you'll want to discuss with your insurance agent.
Liability Insurance Coverage
The Liability Coverage on a renters insurance policy works the same way that it does on homeowners or an auto insurance policy. Liability coverage protects the insured from legal action arising when the insured is responsible for someone else's loss. This could be a tangible loss -- such as losing or damaging someone else's property-- or a physical injury and illness. It protects you when you damage or can be held responsible for damaging other people's property or physically injuring them. Liability insurance will cover the legal fees and court cost associated with a legal battle, as well as any settlement or court ruling.
Some examples of liability claims are:
- You have a guest visit your apartment, and they trip and fall over an object you left on the carpet.
- You borrow a friend's computer for the weekend. While working on the computer, you spill a glass of water on it and fry the motherboard.
Liability insurance for rental insurance coverage is usually purchased in increments. Most apartment complexes require the tenant purchase at least $100,000, but you can buy higher coverage in additional increments. Common limits include $300,000, $500,000, or $1,000,000.
Property Insurance Coverage
Property insurance coverage protects you when your own property gets damaged or destroyed.
Some examples of Property Claims are:
- Apartment fires that destroy everything in your apartment. You'll need new furniture, clothes, food, toiletries, and electronics.
- Someone breaks in and steals your computer and TV.
Because Property Insurance protects your personal possessions, it also requires a deductible, much like your auto or homeowner's insurance. The deductible is the amount you must pay to replace or repair your property -- the most common deductibles are $500 and $1,000.
Apartment complexes are not concerned with Property Coverage. They only care about liability insurance. However, you should think about how much coverage you will need to replace every item you own, as well as how much you want your deductible to be. Consult with your insurance agent to get the details.
Renters insurance does have more protection, like medical payments, and back up water. But the two most important coverages will be the Liability and Property coverage.
How Much Does Rental Insurance Cost?
Consider the coverages that you have on the policy when you look at the cost. Liability insurance is normally less expensive than Property coverage. But the good news is that you can change the deductible or the total amount of Property coverage to adjust your rates.
Something else to be aware of is that your rental insurance rates are also based on your insurance grade. This grade consists of several items, including your location, area crime rate, any previous claims, and -- most importantly -- your credit score. So your rates will vary.
However, you should be able to get a reasonable policy with monthly payments between $20 and $30. This can be advantageous since many insurance companies will bundle it with other insurance you have with them (auto, boat, business, etc.) and provide a discount that may result in little or no increase in your overall insurance payments.
I have written rental insurance policies as low as $12 each month and as high as $50 each month: it boils down to each client's circumstances. However, the majority of clients in Oklahoma have rates that are between $20 and $30.
Why Do Apartments Require Rental Insurance?
The apartment, condo, and townhome complexes are primarily concerned with liability coverage. The liability covers them in two different ways.
Additional protection for major lawsuits
Several years ago there was a lawsuit that caused a stir with rental insurance. A young adult, who was a tenant of XYZ apartments, held a party at his apartment complex. During the party, there was an accidental fatality. The tenant did not have any insurance and the family of the deceased could not collect anything from him. So they went after the apartment complex for damages.
If tenants carry insurance, it reduces the risk of a liability claim being filed against the apartment complex due to a tenant's negligence. At the very least, the apartment complex will be the second payer and not the primary.
Protect their own property
Although complex's charge a deposit fee and have their own insurance, they still may need additional protection. There are claims each year where a tenant destroys a unit so badly that the renter's deposit does not cover the actual cost of repairs. If the insurance files a claim on their insurance policy, they must pay a deductible and face increased rates -- all because of an unruly tenant.
If a renter has liability coverage, the apartment complex can file a claim on the renter's Liability Coverage to pay for the excessive repair costs, and the apartment complex is not out any additional money.
Each renter having their own property insurance is critical to the apartment complex and helps them in the event of a large disaster. For example, let's say another tenant in the complex you live in leaves their stove on, it catches their apartment on fire, and the entire apartment building complex burned down. You live in that complex, did not start the fire, but you lost all of your property. Having renter's insurance allows you to file with your own insurance company to replace your belongings, then go after the apartment complex for the deductible. The apartment complex is more likely (and willing) to pay $1,000 per tenant than $30,000. It also keeps the claim out of the courts, which could take months or even years.
So when you are looking at moving into an apartment, condo, or townhome complex, it is important to understand what kind of coverage you need. Not just for complex's satisfaction, but for your protection. Make sure you know the answers to the following questions:
- How much you will need if you lost everything you owned.
- How much are you willing to pay if something did happen to your property?
- Does your insurance company offer discounts for bundling? If so, what would the total discount be and does that offset the price of the renter's policy?
Remember to talk face to face with a licensed agent. Calling a 1-800 number or shopping online is not the way to protect yourself or your belongings. There are local agents out there who are more concerned that you get the right coverage at a fair rate, rather than just trying to close another sale.