Is it Possible to "Force" residents to Obtain Renters Insurance?

Question

Can You "Force" Renters to Have Renters Insurance?

Derek Lacy · Answer

The answer is yes you can force place renters insurance if it is contractually required/allowed.  Meaning you need to have a clause stating you must provide acceptable proof of personal liability coverage as found in the renters policy, if you don't we will purchase it for you and add the cost onto the rent and due with the rent.

The insurable interest argument is correct, you cannot go out and buy a renters policy from State Farm and place it in your name for their contents, you cannot place the policy in their name without their permission....  So that leaves us a little stuck huh?

Well there are insurers that specialize in this.  They put "forced placed" liability coverage on the unit.  Usually about $14 a month per unit and covers up to $100,000 in liability.

This is what is almost ALWAYS missed when investors talk about requiring renters insurance.  Why do I care if their stuff gets stolen...  You financially don't.  But do you care if your tenant doesn't watch the boiling pot, starts a fire and does $50,000 in damages to your home?  I bet you do.  And there is the insurable interest.  Your tenant is being entrusted with your property and you are requiring liability coverage per your contract.  There is absolutely an insurable interests there.

What if their child leaves the bath running and does $75,000 in water damage, renters personal liability would cover that.

This saves you from turning in a claim and paying a deductible in the event the tenants negligence causes the claim.  Most likely you'll turn it into your property insurance, but they will go after (subrogate) against the liability insurance included on the renters policy.

Now, most of these forced place renters insurance insurers are looking for property managers or apartment complexes, they usually want you to be in control of 50+ units to offer the coverage.  You might just have one renter not complying, but they want you to have more than a few SFD's.

We can certainly help anyone out with further specific questions on this type of coverage.

Patricia Steiner · Answer

Yes. It's in our lease and we expect confirmation/policy to be provided (Renter's Insurance with landlord as additional insured) before the tenant moves in.  It's inexpensive for the tenant and a must have for landlords (especially so if you have a washer/dryer or pet on premises)

William Robison · Answer

Bringing back to the top.  Does anyone have an insurance provider that is putting in these forced placed policies?  Looking for a referral.

Bill Gulley · Answer

Okay, please tell me why I can't just buy life insurance on you? Now, I can see being a loss payee only having an insurable interest in personal or real property, that's done everyday, I agree.

If I have no financial loss arising from another's actions, acts, loss I wouldn't have an insurable interest in the matter. I agree to that in situations of co-habitation, both occupants share liability exposures.

Being named doesn't seem to be the problem, making the claim seems to me to be an issue when more than one company insures the same risk. That would really depend on the nature of the claim, who covers who first, don't even want t think about contributory negligence. I'd bet that states iron that out. It can be a mess.

I agree with you, it can be required in a lease. Not sure I'd join in on a tenant's policy as a landlord, whatever local custom may be prevails. But, "insurable interest" doesn't just pertain to P&C. It's the fundamental requirement to insure against a financial loss or interest. :)

Jeff B. · Answer

I agree with everyone else that it should be in the lease.  Compared to the cost of insurance the landlord pays vs. tenant for renters insurance it is a small amount.

We all know that renters insurance covers theft, damages to property, and liability for the tenants property.  Additionally regarding liability if something happens inside the property that is Not caused be the negligence of the landlord then the claim would be on the Renters insurance.

I do Not see any negatives for a tenant to have renters insurance.

Allen Clark · Answer

It's in the lease that they sign that they must obtain and show proof of insurance. I need to see that before they move in. Have not had a problem with that yet.

Susan M. · Answer

My opinion on this has always been, you can try.  You can put it in your lease that it's required and you can verify it when they move in by making them show you a copy of the policy, but what prevents them from dropping it the day after they move in?  Are you going to make them send you a valid policy update monthly?  If not, then I don't see how this could ever work.

And if the purpose is to obviously avoid having to pay claims the tenant should be responsible for, if they didn't have insurance but you could produce a lease that says they agreed to carry it and in fact had it at one point then dropped it and that they were in violation of that lease clause, would that really help? Would a court find in your favor? I'm guessing it wouldn't.

Bill Gulley · Answer

No, not if it wasn't agreed to initially in the lease. Additionally, might check local laws concerning costs a tenant is required to pay for to obtain a lease.

However, you can have problems saying an additional insured, I see the trend of PMs trying to horn in on liability coverage, I suggest you speak to the agent involved. You have no insurable interest in a tenant's liability risks or their personal property, an insurable interest must be present to have a valid policy. Besides, liability for you will be covered first from your policy. Duplicating coverages is always a bad idea, that pits two insurance companies at odds and delays as well as muddies claims up.

I can see an interest as a lien holder, not an additional insured, much like a lender on a homeowner's policy, it's a loss payee. But, again, what loss do you have if the tenant gets ripped off for his new stereo system?

All real estate is local, so I suggest you ask your attorney. I can understand a landlord trying to get a free ride on insurance, but in a residential setting it may not fly very well. Commercial exposures are very different. :)

Mike S. · Answer

Yes, and have them add you as additional interest and you will get notified if they cancel or don't renew.  My lease stipulates that failure to maintain renter's insurance will result in a policy being issued at the tenants expense(with a premium for the trouble) and the fee considered added rent.

Is it Possible to "Force" residents to Obtain Renters Insurance?

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