Question about renters insurance requirement

5 Replies

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

@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.

@Denise Evans : Really appreciate your detailed response!

I spoke to my PM and he/she mentions that they cannot legally put the requirement (of having renters insurance) in the lease and doing so is illegal in alabama. PM says that they can just encourage the tenant to buy renters insurance thats the extent  of what they can do.

I also spoke to my insurance company and they said they don't cover personal belongings.

I am really confused here, you mentioned that I can add the renters insurance requirement in the lease but my PM says that they can't coz its illegal.

Is there a sample lease copy that you have that might help me understand this little better? At this point I am not sure what options I have.

@Gorden Lopes , Your PM is misinformed.  It is not illegal. People in Alabama, as in other states, are allowed to make any contractual relationships they want, as long as they are not specifically illegal. The Alabama Uniform Residential Landlord Tenant Act makes some things illegal. Tenants cannot agree to pay more than one month's security deposit, except in very limited circumstances, as one example. Nothing in the act makes it illegal for a landlord to require tenants to have renters insurance.  If a landlord has NO renters insurance requirements, it is illegal under FEDERAL law to require tenants with disabilities to get it. That is because you are treating the tenants with disabilities differently from other tenants, and that is illegal under the Fair Housing Laws.

I have leases, but they are handouts in my classes, so I really don't have anything I can just send you.  In my opinion, a large majority of the leases in use by property management firms are poorly written, do little to protect that landlords, and are not well understood by the property management companies.  Mine, of course, are different, but only because I actually understand the law, have been a landlord, understand the practical problems and legal problems, and am good at drafting plain English documents that are easy for everybody to understand.

Please believe ME!!!!  It is absolutely and positively, without a doubt, NOT illegal to require tenants to get renters insurance.  If your PM insists on telling you it is illegal, ask them for a copy of the law that makes it illegal.

@Gorden Lopes , I forgot to address the personal property issues in my response above. I've never heard of an insurance company that does not cover the insured's personal property as well as their real estate.  Are you sure the agent understand your question correctly?

@Denise Evans

Sorry for the delayed response and thanks for this great information! Really appreciate you takin time to respond to my query!

Regarding personal property, you are right the personal property is insured. 

As for the renters insurance, the PM company has various clauses mentioned that mentions that the renter is responsible for insuring their belongings! 

At this point I am satisfied with the clauses and gives me a better understanding of the whole insurance thing.

BiggerPockets rocks!