Can a landlord make you buy renters insurance?

A decade ago, mandatory renters insurance was so rare that landlords who tried to impose it risked losing tenants.

Today it’s as much a part of the rental process as a security deposit, credit check and first month’s rent.

But in the early 2000s, when the cost of property insurance for apartment owners skyrocketed, landlords sought to reduce their costs. Now a $100,000 deductible is common at large complexes. The high deductible reduces an owner’s premium, but leaves him with a hefty bill each time a tenant starts a stove fire or lets the water overflow.

The solution: File a claim against a tenant’s policy instead.

“Landlords are getting wise. They’re drafting smarter and smarter leases that allow them to go after the tenants,” says Gary Wickert, a partner with Matthiesen, Wickert & Lehrer and an expert on subrogation. “Renters insurance will hire a lawyer to defend tenants, but it also provides a target for landlords. Now the landlord has a tenant with insurance, instead of a tenant without insurance.”

A big shift in liability to renters

Moving dayRenters insurance combines liability coverage, which pays for damage to the property caused by the tenant’s negligence, with personal property coverage, which pays to help replace a tenant’s damaged or stolen property, items that are not covered under the building’s policy. (See what else renters insurance covers.)

Frank Barefield, president of Abbey Residential, which operates 9,000 apartment units in Alabama, Texas and Florida, carries a $500,000 deductible on his own insurance, saying he’d rather spend the money on fire-prevention devices. “I don’t want to pay the thousands of dollars of premiums when we have very few claims,” he says.

But he also doesn’t have to reach into his own pocket if a tenant burns a kitchen or floods a hallway. Each of his tenants is required to carry a $100,000 liability policy, at a cost of $15 to $18 a month. (For another $10, the tenant can add insurance to cover his personal belongings.)

“Something in the mentality of the resident as well as the mentality of the owner has changed,” Barefield says. “All of a sudden owners expect it, and tenants expect to pay it.”

Oklahoma says no to mandatory coverage

Lease agreementWhile the National Apartment Association doesn’t have a count on how many owners are doing it, it does provide sample lease language to help its members implement a forced renters insurance policy.

Tenants are left to wonder: Can this be required of me?

Housing laws are crafted at the state level. Oklahoma may be the only state to expressly outlaw the practice; landlords there cannot require tenants to buy renters insurance. But many states follow the same principle behind the Oklahoma precedent.

That precedent, known as the Sutton Rule, holds that a tenant is a co-insured of the landlord’s policy, since the tenant effectively pays for the policy by way of rent. As such, the building’s insurance company cannot sue the tenant for negligence. Insurance companies are not allowed to sue their own customers.

“The court in Oklahoma says: You have a liability policy that’s going to cover almost every situation, so why are you requiring duplicate coverage?” says Janet Portman, executive editor of legal publisher Nolo and an expert on housing law.

Landlords obviously want to avoid filing claims against their own policies, to keep their premiums low and to allow them to maintain high deductibles. Portman says, “Their answer is, ‘I want to protect my policy.’ And that, according to the Oklahoma Court, is not sufficient.”

Few limits on renters requirements elsewhere

Apartment complexVirginia allows landlords to require renters insurance and lets landlords even carry the insurance and charge tenants through fees. But the annual cost, plus the security deposit, cannot exceed two months’ rent.

Oregon goes a step further. Landlords can require renters to buy a $100,000 liability policy (more if it’s customary for similar rentals), but they must carry a comparable policy and show proof to any tenant who asks. Furthermore, tenants who earn 50 percent or less of the median area income, as well as tenants of publicly subsidized housing, cannot be required to buy renters insurance.

Cities with rent control, such as New York and San Francisco, may also put a dollar limit on the amount that landlords can require renters to pay for insurance.

Yet in most, if not all, remaining states, no limits on renters insurance seem to exist.

Tenant groups have opposed the requirement, saying it joins a growing number of fees used to shift landlords’ costs to tenants.

“Some tenants will say, that’s none of your business,” Portman says. “If I want to take the chance that I’ll lose something in a burglary, or flood, or fire, that’s my business.”

Auto-renters insurance bundle cuts the cost

Apartment parking lotIn 2012, the most recent year available, the average cost of renters insurance was $187 a year, or $15.58 per month, according to the Insurance Information Institute.

Some landlords secure low, group rates for tenants. Jamin Harkness, vice president of Wesley Apartment Homes in Atlanta, says his tenants need pay only $3 a month for a $50,000 liability-only policy with no deductible. For $9 more, they can add personal property coverage.

“We not only want to protect our property, we also don’t want them to be left on the hook,” says Harkness.

In addition, a tenant who buys a renters policy from the same company that insures his or her car likely will offset some of the cost with a home-and-auto bundling discount, says Des Toups, managing editor. Nationwide, the discount averages 4.9 percent.

Why you need renters insurance

Apartment fireLandlords say they are primarily concerned about liability. But some landlords also want tenants to carry personal property insurance.

“This isn’t because of warm, fuzzy feelings,” Portman says. “They simply want to make sure the rent stream isn’t compromised from the tenant having to plunk down a lot of money to replace lost, stolen or damaged items.”

Nonetheless, Portman and many tenant advocates recommend that tenants buy renters insurance. A payout can be particularly valuable for people without large cash reserves. Renters insurance will pay for a hotel if your home is temporarily uninhabitable, your dog bites a guest or even if items are stolen from a vehicle.

Insurance Basics For New Homeowners

You’ve been searching for the perfect house for months. Finally, you find the one. After your offer is accepted and a small mountain of paperwork is signed, it’s yours. What are you going to do next?

If you’re smart, before you pack a single box, you will make sure your home insurance has you covered for whatever life might have in store. While your mortgage lender likely requires you to carry some level of home insurance, don’t assume that amount will protect you from financial disaster.

Donald Griffin, vice president of personal lines for the Property Casualty Insurers Association of America (PCIAA), offers these tips.

Tip No. 1: Insure for your home’s replacement cost

Here’s one of the most common mistakes homeowners make: Confusing a house’s market value with its replacement cost. Your home insurance coverage should cover the cost of rebuilding your house if it is destroyed. “The best indication [for coverage] is the cost to build a new home,” Griffin advises. “With an existing home, look at the replacement cost rather than the market value.” This is often less than what you paid for your home; if you’re insuring your house for its market value, you may be overinsuring it.

On the other hand, if you bought a foreclosed home, the price you paid may not accurately reflect construction costs to rebuild it.

To determine the replacement cost, most home insurance companies use software that allows them to enter your home’s features and calculate the cost of replacement. In addition, most policies include coverage for up to 125 percent of the replacement cost.

While it may be tempting to use this buffer as a reason to purchase less coverage, the reduced cost may not be worth the risk you take in having inadequate coverage. Griffin says it can be less expensive to rebuild a home than to do extensive remodeling, and many home insurance claims are for only partial damage to a home.

Tip No. 2: Don’t skimp on liability insurance

There’s the old joke that trial lawyers have never seen a lawsuit they didn’t like. That may be an overstatement, but the threat of legal action is a real concern for everyone – especially if you have assets like a house, savings and investments. If you’re sued for an incident covered under your home insurance (like a slip-and-fall injury on your front steps), liability insurance covers not only the settlement but also your legal fees (up to your liability limit).

According to Griffin, many liability insurance policies will cover you even if an incident happens away from your home. He also recommends buying an excess liability or an umbrella policy that offers coverage of $1 million beyond what is already included in your home insurance and car insurance policies. These policies are relatively inexpensive, often costing $200 to $300 per year.

“You don’t want to lose your home because you failed to buy an insurance policy,” says Griffin.

Tip No. 3: Protect your personal property

Be sure to review the coverage amount for your personal property. Most policies include coverage equal to 50 to 75 percent of the replacement value of your house.

In addition, you may need a separate endorsement, or rider, for some valuables. For example, coin collections, stamp collections, jewelry, furs, fine art, cameras and other expensive belongings may be subject to limited coverage under the personal property provisions of your plan. When requesting a home insurance quote, ask whether these items need to be listed under a separate endorsement to ensure they are properly covered.

Tip No. 4: Don’t overlook coverage for additional living expenses

If your house is destroyed or otherwise unlivable while repairs are being made, you’ll be glad you can tap into your “additional living expenses” (ALE) coverage. This type of coverage won’t pay your mortgage, but it will cover the cost of an apartment or hotel. If you are displaced from your house, you can make a claim for this coverage by submitting paperwork documenting your living expenses.

The ALE standard for most homeowner insurance policies is a benefit worth 20 percent of your home’s replacement value. When you get a home insurance quote, find out if the policy specifies any limitations or exclusions on ALE.

Tip No. 5: Examine what’s not covered

Finally, read the exclusions section of your home insurance policy. Understanding what’s not going to be covered is just as important as knowing what is – before you ever have to make a claim.

In the end, Griffin reminds new homeowners that it is important to choose a financially stable insurance company. Financial strength ratings are available from A.M. Best, for example.

“Remember,” he says, “you are buying a promise from that insurance company that they will be around when you need to make a claim.”

And what about customer satisfaction? J.D. Power and Associates releases annual customer satisfaction rankings of home insurance companies. And state insurance departments generally post their annual “consumer complaint” reports on their Web sites.

Homeownership Rates Continue to Decline As Rentals Soar

CNBC reported on Tuesday that homeownership rates continue to decline to historic lows as rentals soar.

According to the news source, the homeownership rate has dropped to 63.4 percent, which is the lowest number we’ve seen since 1967.

Rental prices, meanwhile – as well as the demand for rental properties – continue to skyrocket.

“Our results for the second quarter and year to date exceeded our original outlook,” noted Tim Naughton, chairman and CEO of AvalonBay, one of the nation’s largest apartment REITs, in the company’s second-quarter earnings release out Monday. “For the balance of the year, we expect accelerating apartment demand to support stronger performance across our business.”

Image via wikimedia/Bhtucker

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Homeowners Making the Shift to Condos


When the S&P/Chase-Shiller home prices indices report for April was released at the end of last week, it showed strong gains in the construction of new housing, with 34 percent of housing starts coming in the form of apartments and condos.

The good news, though, is that despite the shift toward condo living, prices for such housing units is not expected to rise.

“While the shift in consumer preferences for condos versus single family homes seen in the housing starts data may be a change in people’s housing preferences or housing affordability, it does not appear to be changing the patterns of price movement,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones. “Moreover, the shift to condominiums isn’t likely to make home prices more or less volatile than in the past. It certainly won’t reduce the risk of another housing boom-bust cycle in the future.”

Image via wikipedia/William Cho

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NJ Senator Menendez Proposes Bill to Help Homeowners Nationwide Avoid Foreclosure

New Jersey Senator Robert Menendez proposed a brand new bill on Tuesday that would aim to help homeowners nationwide avoid going into foreclosure.

Specifically aimed at individuals and families across the country who owe more than their house is worth, the bill seeks to create a program in which banks would reduce the mortgage principal for eligible homeowners.

“My bill aims to give homeowners the break they need by working with banks to find acceptable solutions for everyone,” Menendez said. “Not only can we help families stay in their homes, we can mitigate the impact zombie foreclosures have on our communities and our economy.”

Image via flickr/

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Report: Millions of Homeowners Still ‘Underwater’

house money

According to a new report released by CoreLogic on Tuesday, millions of homeowners in the United States remain underwater on their mortgages – a “nagging leftover” from the housing crash.

As CNBC explains, 5.4 million homes – or 10.4 percent of all homes with a mortgage – are still in a negative equity position.

“Negative equity continued to be a serious issue for the housing market and the U.S. economy,” said Anand Nallathambi, president and CEO of CoreLogic. “We expect the situation to improve over the course of 2015.”

Image via flickr/American Advisors Group

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Homeowners Earn $1.7 Trillion Equity Bonus

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According to a new report by Zillow, homeowners in the United States earned a collective $1.7 trillion in additional  equity in 2014.

The gains came even despite the fact that home prices slowed down dramatically over the past year.

The report also noted that some homeowners tapped into the new equity already, nearly immediately taking out the money.

Image via flickr/Lending Memo

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Obama Expected to Sign Tax Break Bill for Some Homeowners


On Tuesday, Congress elected to extend several expired “temporary” tax breaks for 2014, and included in there are a couple of deductions for select homeowners.

First, homeowners paying mortgage insurance premiums will be able to deduct he cost of the their premiums if they itemize their deductions. And anyone who has foreclosed on a home or sold their home for less than the amount still owed to the bank and had their remaining debt forgiven, the IRS will allow you to exclude that amount from your income.

The bill is now in the hands of President Barack Obama, and according to CNN Money, he is expected to sign it.

Image via flickr/John Morgan

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Nearly 1 Million Homeowners Experienced Equity Gains in Second Quarter


In the second quarter of 2012, as many as 950,000 homes saw a positive equity gain.

This puts homeowner equity $1 trillion ahead of where it was at this time last year.

“Many homeowners across the country are seeing the equity value in their homes grow, which lifts the economy as a whole,” Anand Nallathambi, president and CEO of CoreLogic, told Mortgage News Daily. “With more and more borrowers regaining equity, we expect homeownership to become an increasingly attractive option for many who have remained on the sidelines in the aftermath of the great recession. This should provide more opportunities for people to sell their homes, purchase a different home or refinance an existing mortgage.”

Image via flickr/Simon Cunningham

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