Rental Property Investor · Richmond, VA · Member since 2017 · 71 posts · 10 votes
I have a SFH with three non-family tenants. I am requiring rental insurance for the first time this year - $1MM liability and me listed as an additional insured.
Question: If two tenants got rental insurance for $1MM each, does the 3rd person need rental insurance too?
I originally was thinking one policy was fine, but now that I am realizing two out of three wanted own insurance to cover personal items too. What happens if the 3rd person doesn't want insurance for personal items. Will the two insurance policies with $1MM liability each be good enough as a property owner? Or do I press the 3rd person to get insurance as well?
Or is it possible to have a tenant listed as an additional insured on another tenant's insurance policy if that is what the tenant wants?
NOTE: The tenants are all on the same lease agreement. Meaning they have joint and several liability.
Nerissa Marbury
Is it allowed? Sure underwriters can do anything. Have I ever seen an underwriter do it? Nope.
The way that would settle 1 and 2 have coverage, three none. Let's say they do $75,000 in covered damages, and each exactly equally at fault.
Insurer 1 pays $25k
Insurer 2 pays $25k
You get a judgement for $25k against tenant 3.
The you could be your property insurer through subrogation (going after the at fault party).
Here's a wrench to throw in your plans, in insurance we love to talk best practices. What are you doing to confirm tenant legal liability coverage for water damage?
Traditionally fire, smoke, explosion are the only perils covered on tenant legal liability on the renters form. But some insurers cover water damage as well. Quite frankly overflowed toilet or bath is much more likely than explosion.
My suggestion, ask for a certificate of liability each year from the agent stating you as additional insured and water damage is a covered peril on tenant legal liability.
@Nerissa Marbury if there is a claim of tenant negligence or a liability suit involving the 3rd tenant, who does not carry the insurance, the policies of the other 2 tenants will not provide coverage to you.
Thank you @Jason Bott. However is that any situation that involves the 3rd tenant? Meaning if something occurs and tenant 1 or tenant 2 were also involved, do I not have coverage simply because tenant 3 was involved?
Or can it be as "simple" as asking tenant 1 or tenant 2 to add tenant 3 to their insurance as an additional insured with the "interest type" of roommate / occupant.....it that is even allowed?
Nerissa Marbury
Is it allowed? Sure underwriters can do anything. Have I ever seen an underwriter do it? Nope.
The way that would settle 1 and 2 have coverage, three none. Let's say they do $75,000 in covered damages, and each exactly equally at fault.
Insurer 1 pays $25k
Insurer 2 pays $25k
You get a judgement for $25k against tenant 3.
The you could be your property insurer through subrogation (going after the at fault party).
Here's a wrench to throw in your plans, in insurance we love to talk best practices. What are you doing to confirm tenant legal liability coverage for water damage?
Traditionally fire, smoke, explosion are the only perils covered on tenant legal liability on the renters form. But some insurers cover water damage as well. Quite frankly overflowed toilet or bath is much more likely than explosion.
My suggestion, ask for a certificate of liability each year from the agent stating you as additional insured and water damage is a covered peril on tenant legal liability.
Thank you @Derek Lacy! I'm starting to understand now.....and water damage is exactly what I want to protect against as it would have been helpful in a recent lease that has expired.
Yes and standard renters will not protect against that in your property.
State Farm, Farmers, Allstate, Travelers, even USAA's coverage forms do not cover damage to the premise for water damage.
Safeco does. There are hundreds of insurers, so it's impossible to know each one, but that's a big six of them.
So even if you do all that work to make sure they have renters, if they have any of those (but Safeco) they don't have water damage legal liability. No matter what that lizard says, not all insurance is equal. It's about as far from commoditized as it can get, but since no one reads the policy, it seems like your buying the same stack of paper no matter which insurer you buy from, that darn ink is always the issue.
This is so helpful to know. So it seems I do not have water damage coverage for the new set of tenants I have signed on. But you live and learn. Now I know what to ask for specifically. @Derek Lacy
You and I are usually on the same side, but you can force insurance through contractual language. Additional insured is tough in some states.
I actually agree I might have to show my tenants my insurance, it's actually part of my lease packet. I don't care if they see it's covered.
I do that to show them I have my property covered. While I might seem like a reasonable guy that won't go after them after they negligent burn down my house, I show them the insurance and say, but these guys can be rather nasty.
Never have an issue with $500,000 in liability coverage. They all get it asap. I do come armed with a quote for them, but do not force them to buy from me. And it's always from Safeco, for reasons assigned above on the thread.
It's not $500,000 of contents we're worried about, they can have $10k in contents for all I care, but 3rd party liability, they will have $500,000 or I will evict (yes I'm the unicorn landlord that actually enforces the renters insurance clause).
you are telling the tenant to buy more than what they need and now if the tenant tells you to buy more insurance, then you need would you follow that rule.
How is asking the tenant to have a set amount of liability insurance and to cover for water damage being "more than is needed"?
If a contract I signed required me to do so, then I'd follow suit (e.g. a bank loan). I also have the option to negotiate and see if I can get something I do agree with.
And if asked for proud of insurance, I have no issue with providing it. The tenant will quickly see it doesn't cover them at all. But since they are "borrowing" my property, I can make certain requirements and if they don't like it then they have the right to rent from someone else.
And it does, but why should my insurance premium unnecessarily go up for (really stupid) negligence of the tenant?
Regardless, I don't mind making tenants have skin in the game with their own insurance. In my market, I'm late to the game. What I'm requiring is standard practice with property management companies and from soaker m speaking to a small number of renters, requiring insurance has always been something asked of them. I was evidently an anomaly until now.
Finally for the specific water damage case that motivated me to add the required insurance clause into my lease, if the tenants had insurance that covered water damage, they wouldn't be hurting so much in the pocket right now either.