How Does Renter’s Insurance Provide Property and Liability Coverage?August 12, 2021
Often, there is confusion as to who is “responsible for what” in a tenant/landlord situation. This is a situation where there is mixed ownership of real estate and personal property all under one roof. So, the question arises “who is responsible for what?” And, also how does renter’s insurance provide property and liability coverage?
Many of these same criteria would apply to either a residential situation or a commercial lease agreement. Let’s look at how renter’s insurance provides property and liability coverage for tenants:
How Renter’s Insurance Provides Property Coverage
To begin, let’s define who owns what; what is the landlord’s property and what is the tenant’s property?
What is Considered the Landlord’s Property?
First, we will identify the landlord’s property. This would include the structure; be it a single-family dwelling, a unit in an apartment house, a duplex, or any structure being rented out to a third party, residential or commercial.
It also would include any furnishings or appliances provided by the landlord for use by the tenant. Examples would include a stove, refrigerator, air conditioners, floor coverings, etc. Often, the lease agreement will outline these items to clarify ownership.
What is Considered the Tenant’s Property?
The tenant’s property would include anything the tenant has brought with them to the property. On a personal level, it would involve clothing, furniture, pots and pans, wall hangings, lawn and garden equipment, toys, and more.
Any item they carry in and will carry out if they leave and vacate the property counts as the tenant’s property. On a business level, it may include office equipment, machinery, inventory, stock, raw materials, etc.
How Insurance Responds to a Property Claim
If there is a property loss on the premises, the insurance adjuster will ask questions as to who owns what. The claim will be paid based on ownership and the respective policies as they apply to the landlord and the tenant.
Each policy will respond independent of the other, based on the named insured on the policy, limits and items covered, and the perils outlined as covered by the policy. Only by way of a signed contract between a landlord and a tenant, outlining responsibility for the other party to insure the non-owned property of the other, will an insurance policy pay for non-owned property in this type of situation.
How Renter’s Insurance Provides Liability Coverage
Now that we have the basics covered for tangible property, let’s look at the liability exposures the landlord and the tenant have and how they may be addressed. This is where it is less black and white; cut and dried. There is much more room for variables. Because of this, the best way to understand is to use simple examples.
Example – A Guest is Injured on the Property
At the tenant level, let’s look at a scenario where a guest on the property rolls and breaks their ankle on an uneven sidewalk. The injured party will want compensation for the medical expense and possibly for the inconvenience of the pain and suffering they had to endure.
So, they will look to the resident of the property, the tenant, for payment. If the tenant has a renter’s insurance policy, that policy will respond to the injured party’s claim. If there is no insurance policy, the injured party may still want to be compensated, and then it would be paid out of the tenant’s daily cash flow.
In the unfortunate event that the injury would not heal and escalate into something serious, a liability policy becomes highly valuable. A renter’s policy with reasonable limits could be less than $200 per year.
The Landlord Still Needs Their Own Liability Protection
To take this example further, if legal counsel is involved, counsel may recommend pursuing the property owner for compensation for the injury. This would be especially true if the tenant did not have any insurance policy to respond.
There is nothing that stops the injured party from pursuing payment from the landlord. This is why it is imperative for a landlord to maintain liability on a rental property. In a commercial setting, a landlord may require to be listed on the tenant’s liability policy as “an additional insured”.
Common Misconceptions About Renter’s Insurance
There are a few common misconceptions floating around about renter’s insurance. Following them or believing them to be true can cause you to be uninsured or underinsurance when you need coverage. Here are some of the common misconceptions:
Myth #1 – You Don’t Need Protection if You Don’t Have Assets
“I have no assets therefore nobody would sue me!” A common misconception is that you don’t need insurance coverage if you don’t have assets to protect. This is not true. Should you end up in a claim situation, judgments can be placed against future earnings.
Myth #2 – The Landlord’s Policies Protect the Tenant
“My landlord’s policy protects me for property and liability exposures.” This is also not true. A landlord’s policy may protect their property and provide coverage for their liability risks as the landlord.
However, those policies will not cover tenant property or liability. Each person is responsible for their own property and liability exposure. This is why many landlords require their tenants to have renter’s insurance as part of the lease agreement.
Myth #3 – Landlords Don’t Need Extra Liability if They Are Listed on a Tenant Policy
“If I am listed on my tenant’s policy as ‘an additional insured’, that’s all the protection I need.” Some landlords may believe that being listed on their tenant’s renters policy will provide protection for them. This is not true.
A tenant’s policy may provide a landlord with some protection, but the limit is shared between the landlord and the tenant. If the total judgment exceeds the limit of the tenant’s policy, a landlord will still be liable for the share of the remaining balance. Also, the tenant’s policy does not cover property and liability specific to the landlord, which is why they need a landlord insurance policy in place as well.
Each party in a rental/lease agreement must be aware of their own exposure and have their own policy to protect them individually. As this may be confusing, call one of our knowledgeable agents to discuss your specific situation. We can be reached at 717-665-2283 or toll-free at 800-537-6880.
Disclaimer: Information and claims presented in this content are meant for informative, illustrative purposes and should not be considered legally binding.