Should I Require Renter's Insurance?

Question

Hello,

I was thinking about requiring renter's insurance as part of my lease. But now that I am looking over the lease documents and there is this section already in there:

"All personal property placed in the leased premises, or in any other part of the building, or any place appurtenant thereto, or in
any vehicle on or about the premises or on any parking facility maintained by Lessor for Lessee shall be at the sole risk of Lessee
or the parties owning same, and Lessor shall in no event be liable for the loss of property of any kind, which may be lost or
stolen, damaged or destroyed by fire, water, steam, defective refrigeration, or otherwise, while on the leased premises or in any
storage spaces in the building. Lessee understands and agrees that it shall be Lessee's obligation to insure this personal property
and Lessor recommends that Lessee obtain renter's insurance."

Now, obviously there is what's written and then there's what's actually legally binding and defensible. So for all the legal and insurance people out there, is this paragraph good enough to protect my interests or should I still be requiring renter's insurance?

Best,

Jon

Nathan Gesner · Answer

A couple thoughts:1. If you require it, you should require the tenant to add you as "additional insured" on the policy. This doesn't cost anything extra, but it adds another layer of protection for you under their policy (only for liability coverage) and it enables you to track the policy. You will be notified any time the tenant cancels their policy, changes it, renews it, lapses in payments, etc.2. You have to be willing to enforce it, and that's hard to do. If the Tenant cancels their insurance two days after moving in, what are you going to do about it? What can you do about it?I never required it because I didn't want the administrative burden of tracking / enforcing. I fixed that by getting a Master Insurance policy that provides renter's insurance for every rental I manage. Tenants are charged as part of their rent and automatically enrolled the day their lease starts. So much easier!

Matthew Addison · Answer

Thanks for this tip!

Jordan Sand · Answer

@Jonathan Leake - I don't see downside to requiring it and it helps if heat is out and the tenant needs a hotel room or something. Most apartment complexes require it these days

Scott M. · Answer

@Nathan G. is spot on. If you require it that means you need to enforce it. Not only do something about cancelations but also renewals. Requiring it and then not requiring it is pointless.

Greg M. · Answer

I believe your YoY percentage is wrong. Renters insurance is typically $100-$200 a year. If monthly rent is $1000, the renters insurance at $100 is .0083% ($100 cost / $12000 annual rent) increase. With a 7% rent increase, they are at 7.8% YoY increase. You want renters to have insurance because you don't want to have to file a claim on your policy. You pay the deductible, you pay the higher insurance rates, you deal with the policy non-renewal/cancelation, etc. Also, if the tenant damages another tenants property, the renters insurance can cover this as the tenant is liable. Your policy won't as you're not liable. Make sure you are listed as an ADDITIONAL INTEREST not an Additional Insured.

Will Kenner · Answer

@Jonathan Leake That makes sense, I see where you're coming from that at lease renewal both the rent increase and added insurance expense would be a significant for your tenants (assuming you're renewing those leases with existing tenants.) At the same time it would be advantageous to get your leases configured so they are best for protecting your properties. It may cause a slight interruption in the short term, but in the long term you'd have your leasing protocols optimized and in your best interest. I would do a little research and find out if other rentals in your area also require renter's insurance and most importantly talk with your insurance company that holds your master policy on the property. The rules and conventions may vary from state to state, so I can only speak to what is typically done where I operate properties - Washington state. If other rental properties in your area require renter's insurance, and your rents are at market rate, then there would be little reason for your tenants to go through the headache of moving just to save a few dollars and still have to get insurance. As for tracking policies and their expiration, I easily manage this both with Stessa (to track transactions and expenses, and it's free) and Avail (paid subscription for online rent payments and leasing). If you only have a few units under management, either of these options would be a great option for you to use.

Nathan Gesner · Answer

I don't even know what the options are for three units. I have 400 so it's easier to find a product like this. Talk to your insurance provider (or three) and see what they can offer.

Jonathan Leake · Answer

@Will Kenner I'd say its a combination of reducing redundancies, simplifying my renter experience, and also not piling on rent increases this year. I have two leases rolling off at the end of April and I am just concerned that if I increase rent by 7% (inflation) AND require an additional $100 expense (~10% of rent) the increase would be too high (17% increase YoY) it might encourage the tenants to look elsewhere rather than hitting the easy button.

Jonathan Leake · Answer

Mm that is interesting re Master Insurance Policy. I'm about to acquire my third multifamily so the timing to looking into that could be right. My partner and I do not put our properties in an LLC and rather just own the individual properties in our names and protect ourselves with insurance on each one. Would a master insurance policy allow one property to put another property at risk and vis versa?

Will Kenner · Answer

@Jonathan Leake I'm no legal or insurance expert, and of course rental laws can vary widely from state to state, so I can only share what our protocol is. We require all our tenants (both residential and commercial) to have renter's insurance and list the LLC that holds the property as a named insured. As you alluded to, what is written in a lease and what is enforceable and defendable is often up for interpretation once in front of an attorney. Therefore requiring your tenant's to have renter's insurance gives you another layer of protection, and another avenue pursue in the event the tenants causes damage or negligence. Is there any particular reason you are hesitant to require renter's insurance, (concern it would reduce the number of applicants, unsure of coverage amounts.....) or you're simply wanting to avoid redundancy between the protections in lease wording and insurance?