Tenant Insurance requirements

[Cameron Marmon]

Hi all, this weekend I will take my first steps in my real estate investing career by listing my home for lease. I feel like I have everything covered except for one item, insurance.

I have been advised to get a policy in my name to cover the property and general liability. I know the tenant needs renters insurance, but should I be added as an additionally insured? Do they need coverage that is sufficient to fix/repair/rebuild the home due to their negligence?

Also, lets say the value of the home is $310,000. How much in coverage for each should I get? 

I would appreciate anyone's advice on how they structure their insurance.

Thank you

[Mitchell Benson]

I have my insurance set up to put it plainly, my policy is on the outside of the building and the renters insure the inside with renters insurance. 

For total $ coverage amounts it is a split between costs to build new & the current market value of the house. If your current market is 100k and it costs 70k to rebuild you may want to have it between those numbers. 

Or on the other hand...if You want to make sure you at least get back what you have in it.....as you know the more you insure the higher the premiums but the more you can get if it burns to the ground.

I set mine to a little above what it would take to rebuild the place.

[Tom Keith]

@Cameron Marmon, Hi, Yes you should make sure the Tenant has property Insurance and has you listed as "Additional Insured". This assures that the policy stays in force as you will be notified if they fail to pay premium.  The coverage you need to dictate is the "Liability portion" and it should be as close to the property value as possible,  the most that could be purchased on the Renters insurance is $300,000.  Anything in excess would be on an Umbrella Policy that is written for $1M range.  If the tenant accidentally causes damage to your home that is considered "negligence" your Property Insurance Company can sue them for the damages and get your and theirs money back.  Yours in the form of your deductible.   Your Liability coverage should be in excess of any property amount that is in your personal name.  So if you have a new home and this one like it,  You should definitely need an umbrella policy yourself to protect your assets.  Once you leave this property and it is no longer your homestead, it could be seized in a lawsuiit as an asset of yours.  Hope this helps you.  

[Jordan F.]

You should look into landlord insurance. I generally ensure to about $500K of premise liability, unless there is a negligent death, that should be more than ample coverage. Further, look at providers who have a 25% extended dwelling coverage add on. In my most recent instance, it was cheaper to ensure up to 75% dwelling coverage and include the additional 25% extended dwelling coverage (kicks in under total loss)  than ensuring the entire complex. 

[Derek Lacy]

Jordan Fox I'd really read that policy. The extended replacement cost provision of a policy only pays out if you insured at 100%. That whole no free lunch extends to 25% extended replacement cost coverage.

Insurers never offered that as bonus coverage, it's a coverage enhancement.

I'm afraid if you ever had a total loss you would find yourself 75% insured. And also since you would be under 80% insured you would find depreciation subtracted from your claim as well.
I won't say this is definitely the case, but 98% of the time this is the case.

As a CPCU, I'm overly qualified to give this opinion.

[Jordan F.]

@Derek Lacy Unfortunately, I did go through a complete loss a few years back on my personal home and had the same type of coverage. Was able to get the full value replaced. Thanks for the tip though I will speak with my representative again.