Does anyone have the language you use in the lease for Renter's Insurance?
I am about to renew the lease with my tenant but it gets very costly having to spend another $250 for my attorney just to add a simple paragraph.
I have drafted something here, not sure if I have missed anything. I would greatly appreciate it if someone can provide a standard or more professional language that is commonly used to address renter's insurance in the lease.
My DRAFT:
"The Tenant agrees to obtain renter's insurance at his own expense and with adequate coverage for the duration of the lease agreement. The Tenant acknowledges and agrees that in the event that he does not have renter's insurance or if his policy provides insufficient coverage, then the Tenant shall be personally liable to all damages and losses that would normally be covered under a renter's insurance policy."
Any advice would be appreciated!
Thanks
MJ
Michael B,
I am an insurance guy so of course I am going to disagree... But I mostly disagree because you are dead wrong. Renters policies from most if not all major carriers are replacement cost, not ACV for contents. I have not seen a ACV renters policy in a decade. The "big waste of money" you are referring to is $10-20 per month for $25-50k in contents, $100k in liability and increased living expenses. The basic principal of insurance is that you are trading a small certain loss (the premium) to protect you from losses that typical renters could not survive. If a fire occurs and they lose everything, very few have a savings or emergency fund to cushion the blow. They can't replace their belongings while dealing with the increased living expenses (weeks of hotels, eating out, deposit on new apartment, etc). Sure, the Red Cross might help a little bit or they may be able to lean on friends and family, but that is not a sure thing.
I don't make any real money off of renters policies. It takes roughly an hour to completely rate, bind and issue a renters policy, for a $15-25 commission. That is well below my typical daily/hourly sales goals but I will do it because these people need security the most. In less time I can bind and issue a policy on an apartment building that pays an average of $1150 in commission while I have a backlog of about 30 properties waiting to be quoted. Writing a renters policy is an accommodation for a current client's tenant, it is not very profitable for an agent or a company. In fact carriers will start to get concerned if more than a certain percentage of your total book of business is made up of renters insurance as it is much less profitable then auto or homeowners insurance.
Here's mine:
INSURANCE COVERAGE
Resident/Tenant acknowledges and understands that Owner’s fire, hazard, and liability coverage for injury or damage to persons or property, both real and personal, does not extend to or on behalf of the Resident/Tenant. Therefore, Owner requires that Resident/Tenant obtain his/her own insurance coverage against such risk. Tenant’s insurance policy needs to include liability insurance.
I also tell every new tenant the story of a house I had where the tenant was gone all night and arrived home at 8am to find the house destroyed by water. The house was a one story on a crawl space. The furnace was in the attic and the water heater was in a closet with the pipes running through the attic. The furnace broke while she was gone and a pipe froze and burst. It then spewed water thru-out the nigh until she arrived at the house and called 911.
When I got to the house, I was standing in the living room talking to her. The wall was wavy. (I didn't know it was completely full of water). I poked my finger through the drywall and water shot out about four feet and got her wet.
All of her possessions were ruined and she had no insurance. My insurance company paid to fix the house, but didn't pay for any of her things.
I then tell the new tenant to call their car insurance company and ask about renters insurance. I tell them that it's only $10-15 per month. Money well spent.
I suggest you add language that the tenant needs to name you as additional insured on their renters policy with a 10 day notice of cancellation. That will require the insurance carrier to notify you if the policy is cancelled for any reason including non payment. As an agent, I had to start making people pay in full for renters insurance because most would bind coverage to move in and then cancel it or have it cancel for non payment 45 days later.
Joe Bertolino - what about waiver of subrogation? I've seen your other posts that mentioned this, maybe you could explain that.
A waiver of subrogation basically waives the rights of their insurance company to attempt to subrogate or take action against a third party who may have triggered the damage. II was probably referring to hiring a trade contractor and having them name you as an additional insured with a waiver of subrogation. I doubt a renters policy would allow a WOS in favor of a landlord.
However you phrase it, be sure to enforce it! We've seen statistics that indicate 60% of property claims are caused by tenant negligence...
Here is ours:
13. Insurance and Indemnity. The Tenant acknowledges and agrees that the risk of loss for all contents and property belonging to the Tenant shall be on the Tenant. The Tenant is required to obtain his/her own renter’s insurance policy against fire, theft, or other disasters, as the Landlord carries insurance on the building(s) only. .
The Tenant hereby agrees to indemnify, compensate and forever hold harmless, the Landlord, its successors and assigns, any parent affiliate and subsidiary entities, their insurers, their assigns, their successors, their legal representatives, officers, directors, employees, agents, or any others who may be acting on behalf of them from any and all claims, damages, actions, causes of action or liability whatsoever, resulting from or arising out of injury to or death of any guest, agent, employee, licensee or invitee of the Tenant in or about the Premises, or damage or destruction of any property owned by the Tenant or any guest, agent, employee, licensee or invitee of the Tenant, unless such injury, death or damage solely and directly results from the intentional or grossly negligent acts of the Landlord.
I insist on it & I like it through my broker so I know when its due & if its cancelled.
I have one that I pay the annual $55 because she is older & has a large aging dog. I just raised her rent to cover it.
It saved me a lot of aggravation.
So Glad Tim Norris chimed in. Thanks Tim!
We do not mandate it, but with renters we recommend it. We had a tenant, no Tim not making a claim, have a break-in and we said your lease shows you are responsible for damage from all "Welcome and unwelcomed" guests. He had tenant insurance, but his insurance company tried to tell him that the replacement of the window was the "owner's responsibility", which it is not, based on the language in the lease.
So even if the clients/tenants do not have insurance, make sure your lease is strong to protect your business for the "what-if" factors.
I like Jack's advice, as well. The point is not as much requiring it, but enforcing, verifying, and "tracking" that they keep it. May seem like a pain, but well worth it, if/when they or their negligence is the cause of your property loss.
I only have one rental right now (getting ready to close on number 2 in a few weeks) so I do not have much experience, but I also provide a handout to all tenants explaining renters insurance, the typical costs, what it covers and why it is important. I discuss this with them so they understand...I think many people would be surprised at how many people do not know anything about renters insurance.
Everyone... Valuable information! Thank you for sharing.
One other thought: We have a location at the end of the paragraph about insurance to have the initials of the tenant or tenants to initial. We do this so if a problem does arise we can prove that they did know about the insurance. Also I provide a contact of a place to get renters insurance if they wish to use my person.
I take just the opposite tack: I tell my tenants that renter's insurance is an overpriced ripoff and probably will be of no use. Don't waste your money. The value they assign to a 4 year old couch or dress is so low it's not worth pursuing.
All small insurance policies (renters, vacation insurance, extended warranties, full coverage on older cars, etc.) are overpriced and great moneymakers for the companies. But they are of very little value to the customer because the payouts are so low and so improbable compared to the premiums.
The basic rule of insurance is that if you can afford to take the loss don't buy the insurance. And buying renter's insurance is one of the worst offenses to that rule.
THANK YOU ALL for the feedback.
I am in the process of negotiating a new lease. Do I insist that the applicant gets renter's insurance and put my name as additional insured BEFORE I give him the key to move in? Or better yet can I insist that the applicant shows proof that he has purchased renter's insurance even BEFORE we sign the new lease?
Reason I ask is what if he signs the lease and agrees to purchasing renter's insurance but in the end he never bothers to get one? Then I am stuck with him living in my place without renter's insurance?
BTW, there were some really excellent suggestions and comments from the posters in this thread, just want to say thank you !
Michael B,
I am an insurance guy so of course I am going to disagree... But I mostly disagree because you are dead wrong. Renters policies from most if not all major carriers are replacement cost, not ACV for contents. I have not seen a ACV renters policy in a decade. The "big waste of money" you are referring to is $10-20 per month for $25-50k in contents, $100k in liability and increased living expenses. The basic principal of insurance is that you are trading a small certain loss (the premium) to protect you from losses that typical renters could not survive. If a fire occurs and they lose everything, very few have a savings or emergency fund to cushion the blow. They can't replace their belongings while dealing with the increased living expenses (weeks of hotels, eating out, deposit on new apartment, etc). Sure, the Red Cross might help a little bit or they may be able to lean on friends and family, but that is not a sure thing.
I don't make any real money off of renters policies. It takes roughly an hour to completely rate, bind and issue a renters policy, for a $15-25 commission. That is well below my typical daily/hourly sales goals but I will do it because these people need security the most. In less time I can bind and issue a policy on an apartment building that pays an average of $1150 in commission while I have a backlog of about 30 properties waiting to be quoted. Writing a renters policy is an accommodation for a current client's tenant, it is not very profitable for an agent or a company. In fact carriers will start to get concerned if more than a certain percentage of your total book of business is made up of renters insurance as it is much less profitable then auto or homeowners insurance.
Joe - You can't just have a blanket statement that says that all people need a renters insurance policy.
Take my daughter - she has purchased all of her furniture off of craigslist with a maximum purchase of $30. She buys all of her clothes at thrift shops or through clothing exchanges with friends. Her computer is 5 years old and on its last legs. He most valuable possession is her iPhone which is on her at all times. She's beyond frugal. The deductible would be more than her stuff is worth. It makes no sense to pay $100+/year in that situation.
I make renter's insurance optional except for a couple HOA's I have that require it.
I only have one rental right now (getting ready to close on number 2 in a few weeks) so I do not have much experience, but I also provide a handout to all tenants explaining renters insurance, the typical costs, what it covers and why it is important. I discuss this with them so they understand...I think many people would be surprised at how many people do not know anything about renters insurance.
hey james can you point to the handout please sir ?
I had a tenant that caused a fire in a rental house. She had no renters insurance despite our strong encouragement to do so. Results:
1) Tenant was essentially left homeless (single mother with a child).
2) Insurance company paid out $38,000 for fire restoration to property owner ($2500 deductible).
3) Insurance company lawfirm is now pursuing the tenant for damages = $38,000.
I only have one rental right now (getting ready to close on number 2 in a few weeks) so I do not have much experience, but I also provide a handout to all tenants explaining renters insurance, the typical costs, what it covers and why it is important. I discuss this with them so they understand...I think many people would be surprised at how many people do not know anything about renters insurance.
hey james can you point to the handout please sir ?
Below is information that I send to tenants.
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Renters insurance:
Typical renters insurance policies cover named insureds, or those individuals listed on the insurance policy when it is purchased. Rule of thumb: a renters insurance policy automatically covers losses suffered by everyone living in your home AND related to you by marriage, blood, or adoption. If you’re not officially married, or in a legally-recognized civil union, your policy will not cover your significant other by default. But no worries – you can add them as an “additional insured” for an extra cost. If you go down this route, just keep in mind that it may be cheaper (and easier) for each of you to get your own insurance policy. And if added as additional insured, you share coverage limits, and you share claims histories if a claim is ever made.
Renters insurance generally covers tenants if their personal property (say a bike or laptop) is lost, stolen or damaged. This coverage could help the tenant replace their property, which can be a huge relief, especially for big-ticket items. In addition to covering their belongings inside the rental, their insurance also typically protects against the loss of personal property in their car or while traveling.
Renters insurance can cover other living arrangements if a rental becomes too damaged to live in, say after a fire or natural disaster. Renters insurance may also cover an injury to another person that happened at the rental property. For example, if the renter has a party and someone falls and is injured in the process.
Most renters policies use a standard Insurance Services Office (ISO) HO-4 policy form. You can see a sample of that form in the link below.
https://www.uuinsurance.com/z_Agent_PDF_Forms/Policy%20Jackets/HO4%20Renters.pdf
An explanation of the contents of the HO-4 is in the link below.
http://www.insurance-education-group.com/ho4-renter-insurance-policy.html
Some additional coverages for the tenant to consider are:
Additional Living Expense - this endorsement reimburses the tenant for out-of-pocket expenses over and above their normal expenses due to the property being uninhabitable from an insured loss.
Damage to Property of Others caused by an insured
Medical Payments in the event a third party is injured on the premises
Flood Coverage for Tenant's personal contents (not offered to renters except as a separate endorsement)
Burglary Property Damage coverage (not offered to renters except as a separate endorsement)
All Physical Risk rental policy has coverage for just about anything (most tenant policies are Named Peril, not APR)
List of some renters insurance providers, AKA personal property insurance providers (list is in no particular order):
Lemonade http://www.lemonade.com/
Jetty https://www.jetty.com/renters-insurance/
Amica https://renters.amicacoverage.com/
Progressive https://www.progressive.com/lp/renters/
Geico https://propertysales.geico.com/Landing
State Farm https://www.statefarm.com/general/renters-insurance
Allstate https://landing.allstate.com/aff/auto-renters/responsive
USAA https://www.usaa.com/inet/wc/insurance_home_renters
Assurant https://www.assurantrenters.com/
ePremium https://www.epremiuminsurance.com/Renters-Insurance/Default.aspx
Esurance https://www.esurance.com/insurance/renters
Farmers https://www.farmers.com/renters/
Liberty Mutual https://www.libertymutual.com/multi-online-quotes?selectedOpt=renters
Nationwide https://www.nationwide.com/personal/insurance/renters/
American Family https://www.amfam.com/insurance/renters/coverages
MetLife https://www.metlife.com/insurance/home-insurance/renters-insurance/
Travelers https://www.travelers.com/renters-insurance
AAA https://www.eastcentral.aaa.com/
Arcana https://nreia.arcanainsurancehub.com/renters-content
Article discussing how much coverage is needed: https://www.quora.com/How-much-renters-insurance-do-I-need/answer/Shai-Wininger
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Name the limit ($300K, $500K, etc) and make them name you as an additional insured. Get a certificated of insurance from there aging naming you as AI so you are notified if it cancels.