5 Reasons Why You Should Require Renters Insurance in the Lease

Written on January 28, 2016 by Jane Meggitt, updated on January 23, 2017

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Yes, you can require a tenant to buy and maintain renters insurance as a requirement of the lease. Furthermore, doing so certainly benefits the landlord just as much as the tenant.

Many tenants simply assume that a landlord’s insurance policy covers their personal property in the event of damage to the dwelling.

Requiring tenants to purchase their own insurance policy is the only real way to protect their possessions.

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For you, the landlord or manager, renters insurance is an extra layer of protection in this litigious world.

For a tenant, it’s relatively inexpensive, often less than $20 per month, and shouldn’t cause a burden except to the most financially strapped of tenants. Most people can simply add it as a discounted rider to their existing auto insurance policy (if they have one).

Since laws vary by state, speak to an attorney about adding a mandatory renters insurance clause to your leases.

Related: The Ultimate Guide to Renters Insurance

Benefits of Requiring Renters Insurance

1. It Mitigates the Threat of a Lawsuit

The top benefit of requiring tenants to purchase renters insurance involves keeping you out of court. When damage occurs to a renters belongings, and if the tenant does not have rental insurance, there’s a high probability the tenant will try to claim some type of landlord responsibility.

Here’s one scenario:

A tenant throws a party, and a guest is injured. The tenant has no renters insurance, and the injured individual has no or inadequate health insurance. The injured person – or the hospital – files a claim against the landlord. Even if the landlord’s insurance companies agrees to pay, substantially higher premiums are sure to follow. The same scenario occurring on the premises of a tenant with renters insurance takes the landlord out of the picture.

Check out these other examples of actual insurance claims.

Related: Why Landlords are Liable for the Personal Injuries of Tenants

2. It Reduces Your Responsibility

If the worst happens and there’s a fire or other disaster, you might feel responsible for finding your tenants a temporary place to stay. In certain states, you are considered responsible and must provide relocation benefits. To make things worse, while in the midst of dealing with your property damage, you’re also trying to negotiate lodging or other necessities on your tenant’s behalf.

Tenants with renters insurance don’t have to rely on your good will or ability to pay for their temporary housing. That’s their insurance company’s role. You shouldn’t have that hassle while you’re trying to get a handle on your own losses.

3. It Weeds Out Bad Tenants

If you require renters insurance and your applicant complains that he can’t afford it, that’s a red flag before you review the application.

…if an applicant complains about the insurance requirement, it’s a red flag before you even review the application.

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If someone can’t afford to pay the low monthly rates for renters insurance, just how close to the edge are they living? What are the odds that they won’t have the monthly rent money?

Renters who live paycheck to paycheck are fine people, but they make horrible tenants.

4. It Covers Your Deductible

If a tenant damages your building, such as inadvertently causing a fire, your insurance policy may pay the repair costs. However, you’re still stuck paying the deductible – which can be a substantial amount of money.

If the tenant does have renters insurance, the policy should cover your homeowner’s insurance deductible – thereby making an unfortunate situation somewhat easier to deal with.

5. It Gives You Peace of Mind

It’s hard to put a price on peace of mind, but knowing your tenants have renters insurance helps fund it.

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Realizing you won’t face lawsuits and pay the accompanying legal fees for issues that aren’t your responsibility takes a load off your shoulders. It should also improve your relationship with your tenants, as you’re not viewing them as prospective litigants should they experience personal emergencies.

Sample Lease Clause

Here’s a sample lease clause that you could use to require renters insurance, however please have a local attorney review the clause above for your own usage. I am not a lawyer, nor is this legal advice.

REQUIRED RENTAL INSURANCE. Landlord, Owner, or Manager does not maintain insurance to cover the personal property of Tenant(s) or personal injury to Tenant(s), their guests or occupants. Tenant(s) is required to obtain rental insurance in the amount of $300,000 public liability and $50,000 property damage from whatever cause to his person or property and to the person or property of those on the premises with his consent, and Tenant(s) shall indemnify and hold all other parties harmless from all claims arising from any such injury or damage throughout the term of the tenancy. Tenant(s) is responsible to obtain insurance within seven (7) days of residing on the Premises. Should any injury or damage occur within the first seven (7) days or prior to obtaining rental insurance, Tenant(s) shall indemnify and hold all other parties harmless from all claims arising from any such injury or damage.

Perform Annual Checks

Just because your tenant showed you proof of rental insurance when signing the lease doesn’t mean he didn’t let the policy lapse.

For best results and continued peace of mind, have your tenant show you proof of insurance annually – typically as a requirement for renewal. If renters insurance is a mandated part of the lease, the tenant’s canceling or allowing the policy to lapse is grounds for termination.

Sample price for moderate housing area in Silicon Valley

Silicon Valley is where homes are all above 1mil and where talented people reside.

Should I Rent to Section 8 Tenants?

Should I Rent to Section 8 Tenants? A Guide to the Housing Choice Voucher Program

The term “Section 8 tenants” refers to renters who qualify for the government’s Housing Choice Voucher Program.

So how do people qualify, and what exactly is this program?

Renters who qualify must have an extremely low income, and if they do, the program helps them afford local housing by paying for 33%-75% of the rent.

Some people in this program are elderly, some are disabled, and some simply have little or no income.

Landlords are divided on whether they should or must rent to Section 8 tenants.

Landlords are divided on whether they should or must rent to Section 8 tenants, and for good reason. The laws vary state to state, and even county to county.

The Fair Housing Act (FHA), a federal law, doesn’t prohibit landlords from discriminating based on Section 8. However, some states, counties, and municipalities do, often by prohibiting discrimination based on “source of income” or “public assistance status” – considering them a “protected class.”

Here’s an overview of the pros and cons.

Pros & Cons of the Section 8 Program

Pro: Guaranteed Rent

“Guaranteed Rent” – Two words that are music to a landlord’s ears. It almost sounds too good to be true.

But, under the Section 8 program, you are guaranteed at least a portion of the rent to be paid to you by the government – the U.S. Department of Housing and Urban Development (HUD), to be exact.

And because you’re dealing with the federal government, this could be a mixed bag. Which brings us to our first two cons …

Con: The Approval Process

As with any government agency, red tape is involved, and Section 8 is no different.

First, you must fill out paperwork, and then your local Public Housing Authority, which operates under the Housing Choice Voucher Program, must approve your rental property.

Then, your property must undergo an inspection, and if approved, it must continue this type of inspection annually.

To pass, your property needs to meet acceptable health and safety codes. And whether your house is approved could depend on how stringent the inspector is in your area (meaning – you should expect to repair minor issues).

Related: HUD Inspection Checklist.

Con: Subject to Rent Control

If you are approved, the Housing Authority then reviews your lease and often restricts how much you can charge for rent. In other words, you can’t necessarily charge what you like.

You can’t charge whatever you want.

You generally can only charge what other properties in your area charge. So your property will be subject to a sort of appraisal process to determine rent.

Note that sometimes, depending on the area your property is in, you might receive more rent through HUD than you would by going through the open marketplace (but I wouldn’t count on it).

HUD then agrees to pay a certain percentage (this varies by case) of the rent. Your tenant pays the remainder, which usually amounts to 30% of their gross income.

Generally, a tenant only pays about 30% of the rent amount.

Pro: Long-term Tenants

Many Section 8 tenants, after being approved for the program and after finding a place to rent, tend to stay put for a while.

Moving is allowed, but Section 8 tenants need to notify the Housing Authority, give you proper notice, and find another place. In other words, it’s a hassle.

Plus, when Section 8 tenants sign a lease, it’s generally for at least one year.

Con: You Hurry Up and Wait

It usually takes a long time to go through the Section 8 process.

By the time you fill out the paperwork, get an inspector to come out, make necessary repairs if required, get the inspector to come out again to check your repairs, get a tenant in, and then receive rent, you might have been able to rent the place to someone else sooner. Meanwhile, you’re receiving no income.

The vacancy caused by delays due to red tape usually outweighs any benefit of the program.

Your Results May (Will) Vary

Section 8 tenants have a bad reputation. And just like any stereotype, there could be some truth to it, but every case is different.

People complain that Section 8 tenants are masters at manipulating the system, and many landlords are left holding the bag.

As with all tenants, there are so many things that can go wrong. For example:

• They lose their voucher, and then won’t leave,
• They destroyed your property, and the housing authority won’t compensate you,
• They moved extra people in despite that being against the rules.

But just as there are horror stories with Section 8 tenants, there are good experiences too.

Some people, whether they are temporarily down on their luck, are disabled, or live on a fixed income, might not be able to afford housing without some help, but they could make wonderful tenants.

The key is for you to run a background check and credit report, and to call prior landlords. Do your due diligence before accepting any tenant.

Related: The Landlord’s Guide to Tenant Screening

Some Municipalities Require Participation

Some municipalities (I’m looking at you Oregon) require landlords to accept Section 8 tenants, meaning that whether you want to deal with a government agency or not, you have to, even though this should be the landlord’s decision.

Related: Oregon anti-discrimination law means landlords can no longer advertise ‘No Section 8’ (Oregon Live)

For example, if a Section 8 tenant fills out a rental application in a municipality that requires landlords to accept it, and if that applicant passes your screening process, you need to start the ball rolling to have your property approved… unless you rent it to another qualified applicant first. (After all, the government is not known for moving fast.)

Even California and the city of Chicago protect people in the program; however, many states like Colorado allow a landlord to “opt-in,” rather than being required to participate.

Note that you don’t have to accept an applicant just because they have a Section 8 voucher. In jurisdictions that require you to take Section 8 tenants, you are encouraged to screen them as you would anyone else.

You need to contact your local or state fair housing agency to determine what the law is in your jurisdiction.

Debt pile looming large over Chinese households

The US$7 trillion debt pile looming large over Chinese households

BEIJING (April 25): The next front in China’s crackdown on debt is the one closest to home.

On the back of a boom in property prices, household borrowing has been climbing for ten years straight, at a pace that rivals any such run-up in major economies. At US$6.7 trillion, and a record 50% of gross domestic product, China’s private debt is now approaching developed-world levels and crimping the power of the consumer to spend.

Take Huang Panpan, a 33-year-old public-relations executive from Beijing. Last year, he took the plunge on a 2.9-million-yuan (US$460,000) mortgage on a 385-square-foot home and now faces monthly loan payments of about half of his take-home salary.

Since then, he’s been in austerity mode: cutting travel, selling stocks, putting off a car purchase as well as a plan to start his own business. "I was someone who never paid much attention to the price tags when buying things or booking trips," Huang said. "I feel more pressured financially with all that debt."

Until now, the purge driven by President Xi Jinping that’s focused on excesses in the shadow-banking sector and the credit-fueled acquisitions of corporate giants has had minimal impact on China’s unerringly stable expansion. The challenge for officials now is to tame rapid domestic credit growth at a time when trade tensions are already causing worries for the economic outlook.

Much of households’ surging debt level is linked to China’s housing bubble, which has seen new home prices in Beijing and Shanghai jump more than 25% over the last two years. Mortgages stood at 22.9 trillion yuan at the end of 2017, making up more than half of all household loans held by lenders, according to data from the People’s Bank of China.

More Stretched

The second largest component of the debt pile is so-called operating loans, which accounted for 22% of the entire hoard and are used to finance small businesses and sole traders, according to a calculation based on official data by Fitch Ratings analysts Jack Yuan and Andrew Fennell. Consumption lending, such as credit card and auto loans, takes roughly 19% of the total household debt, they wrote in a note in March.

Growing mortgage repayments could therefore reduce households’ incentives to buy other goods, pressuring the nation’s consumption growth, according to George Wu, chief economist at Huarong Securities Co. That’s a headwind for an increasingly important part of China’s growth outlook.

"This could undermine the authorities’ efforts to re-balance the economy towards consumption," Yuan and Fennell at Fitch wrote. The nation’s household debt-to-disposable income ratio could near 100% by 2020, versus the current 82% and closing the gap with the US’s 105% and Japan’s 99%, they said. "China’s household balance sheets now appear more stretched than those of most emerging markets."

To be sure, the traditionally high average rate of household saving in China — which far outstrips most developed markets — ought to provide a buffer against debt distress. But habits change, and younger consumers may be more likely to use surplus income to service debt than put aside.

That’s especially risky in China, as the country’s social welfare and medical care aren’t as sound as those in developed nations, where residents may take on more debt more because their governments offer better social benefits, Jiang Chao, an analyst at Haitong Securities Co said earlier this year. The rise in the household leverage is "very irrational," he said.

"The policy makers can’t let household leverage rise this fast, as this doesn’t fit the goal of controlling overall debt growth and offsets the efforts of the deleveraging campaign," said Robin Xing, chief China economist at Morgan Stanley Asia Ltd in Hong Kong. "That’s why we think the central bank will boost broad interest rates — it needs to contain financial risks" that are being created by surging individual and corporate leverage.

China’s economy has proven unexpectedly resilient in face of Xi’s war against debt, with GDP expanding at 6.8% in the first quarter. That said, top government officials led by Xi himself sounded an unexpected warning note this week, signaling the difficulty of hitting growth targets if trade tensions escalate.

Attention Needed

For MK Tang, Hong Kong-based senior China economist at Goldman Sachs Group Inc, getting the balance right in approaching the issue will be tricky. The government neither wants the debt pile to destabilize the financial system, nor wants tighter rules to create too big a shock to the markets or hurt the economy, he said.

Also, at least up until now, the accumulation of household debt helped boost growth through its support of the housing market, according to Haitong’s Jiang. And some consumers may have increased purchases of consumer products thanks to their mortgage debt, as they don’t need to save all their income to buy a house with cash, Tang says. All these complicate the decision-making on the crackdown of the debt pile.

So far, the authorities have done little to directly address consumer indebtedness, aside from warnings from officials like former central bank governor Zhou Xiaochuan. In one of the few actions to directly address the issue, the banking regulator said late last year that it halted issuing licenses to micro-lenders that offer unsecured loans over the internet.

Slower Growth

The situation leaves borrowers exposed to the chances of a broader increase in interest rates if faster inflation materializes. That will only make Beijing resident Huang’s life harder.

"I need to reduce consumption more, if an interest-rate hike leads to a significant increase in the mortgage that I have to repay," said Huang. "Goodbye to membership cards at restaurants and my investments in small businesses. I won’t buy things that aren’t absolutely necessary."

Bloomberg