Question about renters insurance requirement

[Gorden Lopes]

Hi My Fellow BP members!

I recently bought my first investment property in Huntsville AL and was able to rent it out quickly. Tenant moving in on June 7th. 

My PM told me that in Alabama its not mandatory for tenants to have renters insurance, this made me a little nervous and I just wanted to know what sort of insurance coverage do other landlord take?

As landlord, do you still put a requirement to have renters insurance?

Would appreciate your response! Just trying to find my options.

-Gorden

[Denise Evans]

@Gorden Lopes, Renters insurance is not mandatory in Alabama. Prudent investors require it in their leases, and require that they be named as additional insureds, so they get notice of cancellation of the premiums are not paid. They also have lease clauses that give them the right to pay for insurance that is threatened with cancellation, and to charge the tenant for the expense plus a $100 administration fee, plus interest.

Some landlords get renters insurance for all of their renters, and just include the cost as part of the expenses they incur when they rent property. In other words, the expense is built into the rental rate. They use this as a sales tool to show they are a better leasing choice because they offer an additional benefit--renters insurance--at no additional charge to the tenant.

For those others reading this post, renters insurance makes sense for the landlord because:

It includes liability coverage, which can be something for the landlord to pursue under some circumstances if the tenant causes damage to the premises.

A tenant who has renters insurance and suffers a catastrophic loss, such as natural disaster or fire, will collect from its insurance. One who does not have insurance will look around for somebody to sue in order to get some cash to buy new stuff again. Guess who they think of first?  No, they probably will not win. Yes, the landlord will have to pay the legal fees deductible on its own liability insurance, and will also suffer incredibly intrusive inquiries into every aspect of its business and personal life as the parties engage in "discovery" during the lawsuit.

A third party who trips over a tenant's child's bicycle on the front sidewalk, and suffers injury and medical expenses, will look for somebody to sue. Much easier if the tenant has renters insurance and liability insurance, for the injured party to get a quick settlement from the tenant's insurance company.