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The role of renters insurance, renters liability insurance, landlord insurance

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Sometimes being a landlord is a bit like being a job interviewer or on a blind date. The job interviewer landlord wants to make sure that the interviewee can actually work well with the company -- background checks, security deposit, personal references, check-ups on past addresses, last employer. The blind date landlord has no idea what this new tenant may be like, but the landlord is wishing for the best in order for this relationship to work.

But the biggest concerns about tenant-landlord relationships revolve around late rent and property damage. It's easy enough to mediate (or eliminate) two tenants going at it in a personal dispute. Secret pets can be put up for adoption or sent to the home of a tenant's family members. But serious issues like water, fire and medical damage can cause a lot more stress on a landlord than the tenant who wants to paint the walls purple.

So why is it necessary for both tenants and landlords to team up and get renters insurance, renters liability insurance and landlord insurance (the latter called "dwelling fire" insurance by GEICO)? Here are a few examples of why:

Scenario 1: A tenant falls and sprains her ankle in an icy parking lot while bringing in groceries. The landlord will be held responsible for that because it's the landlord's duty to make sure all property is shoveled, and salt or sand is put down to help lower the risk of injuries. This is when landlord insurance is necessary.

Scenario 2: Instead of spraining her ankle, the tenant notices a couple of bumps and bruises but gets up and continues to bring in groceries. The tenant drops all the grocery bags down on a table to get ready to unpack them, but she forgets she left a candle on the same table. The same lit candle lands on the groceries and starts a fire. The tenant is responsible for fire damage that she has solely caused. This is when renters liability insurance is necessary.

Scenario 3: The tenant gets ready to take the toilet tissue package she's just purchased into the bathroom, looks up and sees a huge hole in her bathroom ceiling. Water is everywhere. Her bathroom is completely destroyed. Turns out the neighbor from upstairs was furious that the landlord made him move out after constant complaints about loud music. He chose to flood his apartment after he moved out to get revenge on Grocery Store Tenant and the landlord. Now the tenant can't use her own bathroom.

This is when renters liability insurance, renters insurance and landlord insurance start working together. Neither the Grocery Store Tenant or the landlord should be held responsible for Revenge Tenant upstairs. However, their insurance will have to kick in. Grocery Store Tenant's renters insurance -- not renters liability insurance -- will kick in to reimburse her for all the furniture, towels, clothes and so forth that were damaged during the flooding. But Grocery Store Tenant will still be held responsible for a deductible. The landlord will have to use her landlord insurance to pay for the damages from Revenge Tenant's bathroom floor plus the ceiling and bathroom floor of Grocery Store Tenant. And both Grocery Store Tenant's and the landlord's insurance departments will go after Revenge Tenant's renters liability insurance for reimbursement.

And since a bathroom is a mandatory part of any apartment, Grocery Store Tenant can no longer stay there. She legally can send a written request to move out until the repairs are fixed or choose to stay there and pay less rent until the damages are fixed. Maybe Grocery Store Tenant has a friend in the building who will let her borrow that bathroom. But the landlord has to have the property damages fixed in a reasonable amount of time or risk losing a tenant without any compensation, which are the rules for Chicago's Residential Landlord and Tenant Ordinance's Municipal Code Chapter 5-12-170.

Scenario 4: The landlord is devastated by the news of Revenge Tenant. Now she'll lose money from Grocery Store Tenant who refuses to pay a full month's rent until her bathroom is fixed. But the landlord is depending on repair workers to fix the property damage. In the meantime, whether Grocery Store Tenant moves out for good or shorts the landlord on rent, landlord insurance covers loss of income or rental reimbursement. However, this shouldn't stop the landlord from continuing on with the repairs.

Some tenants may have mixed opinions about having to shell out a couple hundred bucks each year for insurance they'll probably never use. However, it never hurts to have an emergency plan. While the responsibility of home ownership falls into the lap of the landlord, tenants must keep in mind that they can only control their own actions, not those of the other tenants in the building. And unless landlords are prepared to lose tenants for their own neglect, landlord insurance should be an obvious investment for the same reasons.

Source: This information was compiled by the Chicago Personal Finance Examiner after speaking at length with GEICO and Assurant Insurance Center (AIC) about landlord insurance, rental insurance and rental liability insurance. For official legal advice, contact a certified lawyer directly.

Follow Shamontiel on Pinterest for all of her latest Chicago finance, employment and savings tips, or subscribe to her Chicago Personal Finance channel at the top of this page.

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