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The Value of Rental Insurance

By Joe Greenblatt, President/CEO Sunrise Management
Nov. 29, 2017

SAN DIEGO—In the wake of Northern California’s devastating firestorms – with 43 deaths, more than 245,000 acres burned, an estimated 8,400 structures destroyed and fire losses topping $4.5 billion – it seems an opportune time to examine the value of and importance of renters’ insurance. .

Many have and will suffer from the damage or loss of their homes and belongings due to accidents and unexpected natural disasters. But renters, in particular, are at financial risk – especially if they lack insurance. And sadly, most do. According to the Insurance Information Institute, while 95 percent of homeowners have policies to cover theft as well as losses caused by fires, hurricanes and other natural disasters, just over 40 percent of renters carry equivalent coverage.

Our company knows how detrimental lack of rental insurance can be. Just this year, Sunrise Management experienced nine property fires across our portfolio, with fire destroying or damaging 84 units. Residents of these homes – most of whom were underinsured – were displaced. Some suffered injury and many lost everything.

Many apartment fires are directly or indirectly related to resident behavior and are caused by cooking, overloading electrical circuits, space heaters or use of candles and tobacco. It is important to note most apartment leases hold renters responsible for the full cost of any damage they cause to their residence. Yet it’s often challenging for managers to collect on that obligation. And while our immediate concerns are fires, every year we also experience resident-caused flooding triggered by overflowing and forgotten sinks and bathtubs as well as accidental fire sprinkler system damage.

From a property owner’s perspective, these losses are expensive. Absent a renter carrying liability insurance, property insurance deductibles must be paid to remediate the losses, causing loss claims to drive up future insurance costs.

For this reason, renters’ insurance benefits the landlord just as much as it does the resident. As a result, multifamily owner/operators are increasingly on board with mandatory rental insurance.– with more and more landlords making insurance a requirement of the lease, a practice we think is beneficial to both parties.

Over the last seven years, requiring renters to obtain and carry insurance has become an industry best practice. Typically, landlords require resident liability insurance – usually $100,000 in coverage – and also encourage residents to insure personal property for a minimum of $10,000.

While the cost of these programs is covered by the resident, rental insurance is relatively affordable. For under two hundred dollars a year, renters can cover their possessions, the cost of accommodations elsewhere if their home is destroyed and liability for on-site accidents.

The downside to mandatory renters’ insurance programs is the administrative burden. Renter compliance must be tracked and – under many programs – there can be gaps in coverage that may leave the owners/investors unprotected. The best programs can be consistently administered and include forced-place coverage that assures property owners there will be no gaps.

With this in mind, more and more property management companies now offer an administered mandatory insurance program. Well thought-out and designed programs are not overly burdensome to the on-site staff (administratively) and afford protections to owners/investors. Under these programs, renters always have the option of selecting their own insurance – however they can typically buy liability insurance, as well as coverage for their personal property, at very attractive rates and pay their premiums with their rent.

Administered mandatory insurance programs can be even more beneficial to owners/investors as they can provide a modest revenue source as well as a potential reduction in insurance costs.

Ultimately, rental insurance provides residents – and landlords – with real value. For landlords, it offers added protection – minimizing liability and responsibility – and for tenants it’s an affordable safeguard, providing peace of mind and security.

Both communities are being transformed into dynamic places where residents can feel good about where they live.

With a 30-year background in the multifamily industry, Joe Greenblatt is the president/CEO of Sunrise Management, a San Diego-based firm which has specialized in the management of multifamily properties since 1978. The firm currently has regional offices in Sacramento, Las Vegas and Phoenix, with a portfolio of 13,000 units throughout California, Arizona and Nevada..

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