Renter's Insurance Liability Minimum?

Question

Hi, folks, I just closed on my first deal a few days ago, and I'm editing our first lease using the template given from BP for my state (Maine). There is a section about leasees providing their own renter's insurance, and names a specific minimum coverage amount. How do I gauge how much should go in that spot? (Copied below)The property is a triplex valued around $375,000. Am I right in assuming the primary reason for this clause is to cover liability for substantial damage done to the unit by the tenant (like a kitchen fire that was caused by them) so I won't have to file on my own policy?Unfortunately, I'm encountering this q in a holiday stretch and my insurance agent isn't available. A current tenant pleasantly surprised us by asking for a lease renewal when we had been told by the seller that she'd given notice that she'd be moving out at the end of her lease (July 31). I'm happy to keep her, and would like to be as quick on getting her the lease to review as I reasonably can.Section in question:"Landlord, in its sole discretion and for its sole benefit, shall cause the Premises to be insured as it deems appropriate. Tenant shall have no right or claim to any insurance or insurance proceeds of Landlord. Tenant understands and agrees that Landlord has no obligation to obtain insurance for Tenant including, but not limited to, liability, hazard, or contents insurance. Tenant shall, at Tenant’s sole cost and expense, obtain renter’s insurance covering the full value of all personal property of Tenant in the Premises, and providing liability coverage to Tenant in an amount not less than $_________, which policy shall name Landlord as an additional insured. Tenant shall maintain such renter’s insurance at all times during the Term of the Lease. Tenant shall provide a certificate of insurance to Landlord demonstrating that Tenant has procured the required insurance coverage, within ten (10) days after the commencement of the Term of this Lease and within ten (10) days after any renewal or change in such insurance coverage. If Tenant fails to procure the required insurance, allows such insurance to be cancelled or to lapse, or fails to timely provide the required certificates of insurance, the same shall be a Default of this Lease."

Nathan Gesner · Answer

Richard is wrong on this one. The Tenant's liability policy will cover injuries and damages. If the Tenant starts a kitchen fire, their insurance policy covers it. It's important to note that your insurance policy does not protect the Tenant's personal belongings, so renters insurance is what they will use to cover damages to their personal property if your house catches fire, the roof leaks, a pipe bursts, etc.A typical policy provides $100,000 in liability coverage. That should be sufficient since most claims will be for much smaller amounts than that. If there were a claim larger than that, your insurance policy would kick in.Check with your insurance carrier. Ask them what they recommend for your renters. Ask them if you will get a discount for requiring Tenants to carry insurance.Consider requiring the Tenant to list you as "Additional Insured" or "Additional Interest" on their policies. Some Tenants will show proof of insurance and then cancel the policy right after moving in, so adding you as Additional Interest ensures you will be notified if the Tenant cancel a policy or allow it to lapse. Additional Insured means you are covered under the Tenant's liability policy. If a visitor breaks their leg and sues, you can be covered under the Tenant's policy instead of having to file a claim with your insurer.Read more about it here: https://www.progressive.com/an...

Adam Martin · Answer

Renters insurance is important as it does not just cover their belongings but also your property against accidental damage by the tenant. I had a tenant who's mover removed the hoses from the washer when they moved on the 3rd floor but left them hanging from the faucet and it leaked onto the wood floors below causing them to need to be replaced since it was not caught for over 24 hours. We filed on their insurance and they paid to fix it and I avoided a claim on my insurance. I require 250k liability and a minimum of 50k personal property but advise them to check with their agent if this is enough. If someone can't afford renters insurance they can't afford not to have it. It is great to have their possessions covered but really I'm requiring it to protect me.

Katie Helmboldt · Answer

Thank you! The BP lease for my state does ask them to add me to the policy. :) Do I need to specifically ask for my husband and I each to be added since we own the property together? I'm handling all of the management stuff, so the tenants only interact with him when he's there doing small repairs or helping me turn over units.

Katie Helmboldt · Answer

Sounds like my understanding was correct, then. Is the liability coverage on their plan the number that we could claim against? And how does your # compare with the value of your properties? Thanks for letting me pick your brain a little!

David M. · Answer

@Katie HelmboldtOh well, in that case good to put your own in place...Just to say, it may be a small cost, but for many every dollar counts...The insurance aspects I am fuzzy. it might go toward "responsibility" first. If somebody trips and hurts themselves, it depends... If its because of worn carpet or loose stairs or something, I am guessing it would go towards your insurance first. If it was due to some toys or something on the floor, I would guess it would be her insurance, then perhaps yours..Yeah, people would just sue everybody... Like I said, insurance isn't my strong suit.Good luck

Katie Helmboldt · Answer

The current leases are... handwritten on a single piece of notebook paper. Binding, but extremely limited. And I've found more than one lease term that is actually not legal in our state. There is no mention of renter's insurance at all. I am not sure if either tenant has coverage at this point, but having watched a dear friend lose all of her earthly possessions in a fire that leveled her apartment building, I want to require it for any tenants we have. It's just such a small cost to protect them, and I don't want to ever have to tell a tenant their whole life's possessions are not only gone, but also won't be replaced by insurance.

Katie Helmboldt · Answer

Thank you--I know there are a lot of things I don't know! So this would cover the tenant and any guests she may have that need to file a claim to absorb the first $X before my policy would need to take on any liability? And, I hadn't thought about running a background check again, but I should! Thank you for the advice!

David M. · Answer

@Katie Helmboldtoh, and if this a current tenant, what does their lease say now? And what do they have now?

David M. · Answer

@Katie HelmboldtInsurance isn't my strong suit...Usually, the liability insurance would dovetail with your coverage...As you see in #6, the "property" insurance should be limited to the the renter's personal property. You, as the landlord, are insuring the rest of the "house."Honestly, I've never really focused much on tenant insurance. Its their problem if their personal belongings get stolen. As for the liability, yeah if they or somebody they invite in does something and they don't have insurance, it can come bite me and my insurance.Also, most of these policies are templated as well. Other poster mentioned HO6 --- yup, all of mine are HO6...Sorry, good luck.

Richard F. · Answer

Aloha,Sorry, you are not correct. Liability is a first line of coverage to protect YOU when a someone falls and breaks a leg. Your HO6 covers your structure and only your personal property with proper rider (for appliances you provide as example). You should check with your Agent for their recommended amount to fill in the blank, based on your coverage and personal finances.Also, can we please assume you are running a new application and complete background check on the Tenant you would "be happy to keep"?