So I get the dreaded phone call, I mean text message...

[Thomas Williamson]

Sunday evening while finally sitting down to relax and watch a little football, I get a frantic text from one of my tenants, "Call me now please." So, before I could call her, another text comes in, "I really need you to call me, it's an emergency." Why on earth she chose to send text messages rather than call me I'll never know. It's that moment in every investor's career that you know will come, but you pray it's not anytime soon, yup a fire. The tenant's original explanation was that the kids were cooking french fries and the grease set off the fire when it hit the burner.

Funny thing happened the day after the fire, she claims the cause of the fire was a faulty plug on the stove. Fire inspectors will be out today to try and determine the exact cause, but I think I see what's already coming. Ugggghhhhh. I do have a large umbrella policy, and the property is in an LLC, so I'm not too concerned.

Quick Tip: I learned from other investors a long time ago to put a special clause in my leases that strongly encourages the tenants to get renters insurance. I even put an example of a water pipe breaking and destroying all their belongings, and inform them in the lease that my insurance will not cover their property, my insurance will only pay for the damages to my house. I have them initial that section as acknowledgement. So, even with that when I asked her if she had renters insurance the answer was no.....

[Graham Mink]

Hi Thomas,

Sorry to read about your situation, it happens too often in my opinion. I am an insurance agent (and REI) in Vermont so we see it all of the time (at work, not in my rentals, knock on wood). For my commercial property I require insurance in the lease and I am starting to think that I should require it for my residential property as well. I am not sure if it's legal to require it. Does anyone know if you can require tenants to have rental insurance?

The cost is minimal, less than $200/yr, so it doesn't make sense that people would go without it. Amazing that someone tries to save a $150 and when it back fires still has the lack of integrity to accept responsibility for it. We deal with this all of the time at the Agency and most of the problems come from uninsured and underinsured individuals. Pennywise and pound foolish.

Keep in mind that your annual premium is going to increase for the next 3 years at least due to the claim. I would recommend staying with your current insurance company for at least that long since when you go to shop it you will be required to provide 3-5 years of loss runs to the new company. When they see the claim they will probably charge you more if they accept you at all. Also keep in mind that your current company may flat cancel your policy when it comes up for renewal. This means they will decide not to renew for another year and you will be forced to go somewhere else, which stinks for you as well. I feel the tenant got off easy simply paying the deductible, you could have more expensive problems down the road. If you have a good insurance agent I would give them a call and ask them about this, they may have more insight into what your current carrier will do once the claim is closed. Good luck!

Graham