Tenant Insurance
Tenant Insurance
Most landlords protect themselves against a variety of hazard and liability losses by trying to have adequate types and amounts of insurance coverages.
Unfortunately, many residential tenants do not realize that they must purchase their own insurance to cover damage to or loss of their personal property. Many also do not understand that they will be potentially liable for accidents that occur inside their apartments or rented homes and also outside of them in some cases. Many wrongly think that the landlord’s insurance will protect them in one or both cases.
Residential Rentals
According to one estimate, less than a quarter of renters have renter insurance. Furthermore, many tenants have limited assets and are somewhat “judgment proof.” For these reasons, landlords should usually expect to be named in any lawsuit when someone is injured on a rental property, no matter that the landlord was in no way at fault.
Accordingly, landlords and property managers should make every effort to insure that their tenants realize the importance of purchasing their own insurance. Tenants must clearly understand that a landlord’s coverage does not extend to their
liability or to replacing their own personal property for losses resulting from risks such as fire, vandalism, and theft.
Landlords and property managers should clearly state in their lease agreements and in other written reminders to tenants that they do not insure a tenant’s personal property or potential liability and encourage tenants to buy a tenant insurance policy for themselves. Not only is the insurance of possible benefit to the tenant, but it will reduce, usually even eliminate potential landlord-tenant disputes after tenants’ losses, including from fire, water damage, and theft.
Tenant insurance, like homeowners, is usually a package of several coverages designed to cover more than one risk. Tenant policies usually have deductibles of $250 or $500. Tenants who live in a flood, mud, or earthquake areas will need to pay for extra for those coverages.
The renter policy is relatively inexpensive because both policy limits and risk will be much less than for a homeowner. The coverage on a building accounts for a major portion of the homeowner policy premium. Tenants only need to insure against losses to their own personal property, with limits likely to be from $20,000 to $50,000. Furthermore, if the renter insurance is obtained from the same company that insures their vehicles, the multi-policy discount will reduce the cost.
Most renter policies also include personal liability coverage of $100,000, although higher limits can usually be purchased.
Tenants can often be convinced that having insurance is of significant benefit, particularly in view of the relatively nominal cost of annual premium, by providing a list of benefits. Although by no means complete, a basic list would include the
following points:
- If another tenant who lives above, below, or to the side of an insured tenant does something that results in damages to property of the insured tenant, the renter insurance of the tenant in the unit who was responsible for cause of damage would pay for the damages.
- In the above scenario, if the other tenant doesn’t have renter insurance, then the insured tenant’s own renter insurance would cover the damages, the degree of compensation depending upon the terms of the renter policy and compensation will either be the amount the items were worth at the time lost, taking depreciation into account, or what it would cost to replace them.
- Renter insurance will help pay for medical bills for someone who is injured on the insured tenant’s rented property. In a serious case where the injuries are extensive or there is a death, and the person files a lawsuit, the renter policy will also help cover legal fees.
- Renter insurance helps pay to replace stolen items. As mentioned before, the insured tenant will either be reimbursed for what the items are worth or for what it would cost to replace them, depending on the terms of the policy.
- If an insured tenant, upon returning to his car, discovers that a window was broken and something was stolen from the car, the tenant’s auto insurance policy covers the broken window, and a renter insurance policy provides compensation for the stolen property, again, the amount of compensation for the stolen property depends on the terms of the policy.
- If a tenant having renter insurance causes damage to his unit or to other rental units – for example, a dish towel setting next to an active gas stove burner bursts into flames and burns the wall and some of the kitchen cabinet, renter insurance covers damage to the landlord’s property. Absent renter insurance, the landlord’s policy would likely cover the landlord’s costs, but the insurance company would have the right to file suit against the tenant to recover its costs and the landlord could file suit for the costs of the damages not covered by insurance, for example, for the deductible amount and any damages not covered by the landlord’s insurance policy.
The insurance agent who services your landlord insurance policy may be able to provide insurance company brochures that discuss rental insurance and would certainly be happy to provide some to you.
Either brochures provided published by an insurance company or a list of benefits developed by the landlord can be attached to application forms when provided to potential applicants.
It is also a good idea to include a paragraph in the lease agreement itself wherein the signers acknowledge that they have been informed of the fact that, absent direct fault of the landlord, the landlord has no liability for loss of tenant personal
property and that they have been informed of the benefits of covering their potential property losses and legal liability to others by having renter insurance.
It is obviously of significant benefit to both tenants and landlords for tenants to have renter insurance. Accordingly, as long as not prohibited by law in the jurisdiction of the rental property, landlords might consider requiring renter insurance as a condition of tenancy.
When thinking about such a requirement, landlords must consider a number of issues, including the market for the particular property. The primary issue is the degree to which the cost of renter insurance added to the rent and all other costs of living at that property (e.g., utilities) might significantly reduce the pool of acceptable applicants. This is, of course, less a concern for higher end rentals than for lower, as those who pay higher rents often carry renter insurance anyway because they usually have more personal property which they need to protect with hazard insurance and more assets which they need to protect with liability insurance.
Commercial Rentals
Commercial property owners must not only carry adequate insurance coverage themselves that is tailored to the type of property, but should require that all tenants insure the leased premises and their liability. This is accomplished by including an insurance clause in the commercial lease. The clause should contain at least the following terms:
- The tenant shall maintain the required insurance at its own expense.
- Casualty insurance shall be carried in an amount not less than the full replacement value of the leased premises.
- The tenant’s policy shall include liability coverage of the amount specified by the lease agreement, all-risk property coverage, and adequate business interruption coverage. The last coverage is important so that the rent will continued to be paid in the event of a loss that requires closure of the tenant’s business.
- The policy shall name the owner (and property management company, if any) on the policy as additionally insureds. This assures advance notification of the additionally insureds by the insurance company in the event of a cancellation, giving them time to force the tenant to solve the problem or face eviction or other legal action.