You're about to rent out your property, and you're figuring out some of the legal details. You keep running into talk of tenant insurance, and everyone seems insistent on requiring it from your tenants.

But should you? What if it turns away potential renters?

If the above describes you, don't worry — we've got you covered. In this quick guide, we'll help you answer any question you may have about tenant insurance:

• What is tenant insurance?
• What does it cover?
• Tenant insurance vs landlord insurance
• Is it mandatory?
• How much is it?
• How do claims work?
• Is it worth it?

By the way — we're guessing you're a homeowner who plans on renting soon. If you want to get the place looking spick and span, or use existing equity in the home to buy an investment property, Lotly can help! We work with 50+ lenders nationwide to find you the best possible deals on renovation loans, personalized just for you. Get a free consultation today!

What is tenant insurance?

Tenant insurance, or renter's insurance, is an insurance policy designed specifically for tenants renting a property. It provides coverage for the tenant's personal belongings as well as liability protection in case someone is injured on the rented property.

What does tenant insurance usually cover?

The exact dollar amounts of covered expenses can vary, but tenant insurance tends to include the following components:

• Personal property or contents insurance: Protects the tenants' belongings like furniture, electronics, clothing, etc., from risks such as fire, theft, vandalism, and water damage. Coverage limits can be selected based on the value of the items, typically between $10,000 and $150,000.
• Liability insurance: Covers the tenant if someone is injured on your property or if they accidentally damage another's property. It can help with legal fees and medical expenses if they're found liable.
• Additional living expenses coverage (ALE): Covers temporary housing and other necessary expenses if your rental becomes uninhabitable due to a covered event (like fire or flooding).
• Water damage protection: Many policies cover water damage from events like burst pipes or flooding. Depending on location, optional endorsements may extend coverage for sewer backups or groundwater issues.
• Personal articles coverage: Optional protection for high-value items like jewelry, art, or collectibles that exceed standard policy limits.

Common Exclusions:

• Damage from normal wear and tear.
• Certain natural disasters, unless specified in the policy.
• Items not classified as personal property (e.g., vehicles).

What is tenant insurance vs landlord insurance?

Since you're renting out your property, you'll need to get familiar with both.

• Tenant insurance protects the belongings and liability of tenants renting a property.
• Landlord insurance is for property owners responsible for insuring it against damages or loss.

Some critical differences between tenant insurance and landlord insurance include:

• Coverage: Tenant insurance covers the belongings and liability of tenants while living in a rented property. Landlord insurance covers the physical structure of the property, any rental income loss, and potential liability as a landlord.
• Cost: Tenant insurance is typically less expensive than landlord insurance since it only covers personal property and liability. Landlord insurance can be more costly due to the added coverage for property and potential loss of rental income.
• Requirements: Landlords may require tenants to have tenant insurance as part of their lease agreement. However, landlords are responsible for obtaining landlord insurance on the property. Neither is mandatory.

Unless you can cover any damage costs out of pocket, you should consider getting landlord insurance for your rented property.

Is tenant insurance mandatory for renters?

Short answer: no.

Long answer:  It's not legally mandatory, but it's common for property owners to require tenants to have it as a clause in the lease agreement.

If you're debating whether or not to require tenant insurance from your renters, here are some potential consequences that may help with your decision:

• Damage costs: Without tenant insurance, your renters may not have the means to cover any damages they cause to the property or their personal belongings. This could result in you having to cover those costs out of pocket.
• Liability protection: Tenant insurance also includes liability coverage for potential accidents or injuries that occur on the property. Without it, you may be held responsible and face legal action.
• Lower risk for both parties: Requiring tenant insurance can help reduce risks for both landlords and tenants, providing peace of mind for all parties involved.

Ultimately, while tenant insurance may not be legally mandatory, it is highly recommended for both landlords and tenants to have it in place.

How much does tenant insurance cost?

The cost of tenant insurance varies depending on various factors, such as location, coverage options, and the value of the renter's belongings.

On average, it can range from $150 to $180 per month. Some insurance providers also offer discounts for bundling multiple policies together or for having certain safety features in the rental unit.

How do tenant insurance claims work? (step by step)

Let's work through an example. Say your tenant's apartment floods due to a burst pipe, causing damage to their personal belongings. Here's how the tenant insurance claims process would typically work:

1. Notify the landlord: The first step is for your tenant to notify you, the landlord, of the damage.
2. Contact insurance provider: Then, they should contact their insurance provider as soon as possible to report the claim and provide details about the incident.
3. Assessment and documentation: The insurance company will then assess the damage and request documentation from your tenant, such as receipts or photos of damaged items.
4. Repair or replacement: Once approved, the insurance company will cover the costs for repair or replacement of damaged items based on the coverage and limits outlined in the policy.
5. Deductible payment: Your tenant may be responsible for paying a deductible, which is an amount agreed upon in their insurance policy that they must cover before the insurance company pays out for the claim.
6. Settlement: Once all necessary documentation and payments have been made, your tenant will receive a settlement from their insurance provider to cover any losses incurred due to the incident.

Trust us — having tenant insurance can help alleviate stress and financial burden for you and your tenants in unexpected situations like these.

Is tenant insurance worth it?

The big question: is it worth requiring your tenants to get tenant insurance, even if it means turning away potential renters?

The answer is a resounding yes. While it may seem like an added expense or inconvenience for your tenants, the benefits far outweigh any initial concerns.

Tenant insurance:

• Protects the landlord's property.
• Covers liability.
• Provides peace of mind.

And really, that last one is invaluable.

Get your property renter-ready with a renovation loan from Lotly

Let's recap all we've covered so far:

• Tenant insurance safeguards tenants' personal belongings and provides liability coverage. It helps cover damages to tenants' belongings, liabilities, and additional living expenses if the property becomes uninhabitable.
• Landlord insurance and tenant insurance serve different purposes. Landlord insurance protects the property itself and potential rental income loss, while tenant insurance covers the renter's belongings and personal liability.
• Requiring tenant insurance reduces financial risks for both landlords and tenants. Although not mandatory, tenant insurance offers peace of mind and protection, making it highly recommended.

If you want to ensure you're putting your best foot forward with your rental property and maximizing your rental income, consider adding some polish and renovations. Lotly works with over 50 lenders across Canada to find the best deals on renovation loans, personalized to your financial situation. Book a free consultation today to learn more!

‍