As a rental property owner, you invest a lot of time and money in your investment. That’s why you need to take the right precautions to protect it.
While landlord insurance is one step that can help protect your investment, ensuring that your tenants have their own protection is crucial to preventing lawsuits and disputes in case of an incident. Let’s talk about why your rental agreement should mandate renters insurance, and how to add it to your lease.
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Why a Renters Insurance Requirement Is a Must-Have for Every Landlord
Renters insurance shields tenants from risk, providing crucial coverage in the event of catastrophe, theft, or injury. This protects landlords from potential disputes, as it ensures tenants have a safety net to cover damage to the property or legal costs if an accident occurs.
Most renters insurance policies include three types of coverage:
- Personal property coverage: Protects tenant belongings from theft, fire, or other covered perils
- Liability coverage: Shields tenants financially in case of injury or property damage on rented premises, covering legal fees, medical expenses, and damages from lawsuits
- Additional living expenses coverage: Provides financial support for temporary accommodations and extra expenses if the rented property becomes uninhabitable due to covered events like fire or natural disasters
When renters insurance is not in place, tenants may request compensation from the landlord to cover these costs, even if it isn’t the landlord’s fault. That’s why you need to ensure that your residents are covered to prevent any responsibility from falling on you or your business.
Benefits of Requiring Renters Insurance in Your Lease
Renters insurance requirements are on the rise, with 84% of multifamily communities enforcing coverage minimums for their tenants. This widespread policy is beneficial for landlords and their relationships with tenants for a variety of reasons.
Accessing the legal protections of a lease
Incorporating a renters insurance clause into your lease establishes a contractual obligation for tenants to maintain sufficient coverage. Any failure to comply with this provision can be considered a violation of the lease agreement, potentially giving you legal recourse to impose a fine until coverage is in place, helping you cover the cost of other risk mitigation strategies and also compel your resident to get back on track.
Setting clear requirements and minimum limits
When you add renters insurance as a term of your lease, you can provide specific minimums and requirements that you expect your tenant to meet. Not only does this ensure that the details of the agreement are in writing, but it also gives tenants time to plan ahead to secure their policy well before move-in.
Establishing expectations with tenants
Despite the widespread rise in the popularity of renters insurance, misinformation remains about who’s accountable for what. In fact, according to a recent study, 57% of renters are unsure who’s responsible for burglary or property damage or think it’s the responsibility of the property manager. As part of your renters insurance clause, you can clarify the tenant’s responsibilities versus yours as a landlord according to legal guidelines.
How to Add a Renters Insurance Requirement to Your Lease
Adding a renters insurance clause to your lease isn’t difficult, but you want to make sure that it contains the necessary components. Here’s some key information you may want to include when writing:
- Required term: How long your resident’s policy needs to be active. In almost every case, this will be for the duration of the lease.
- Minimum liability limits: How much liability coverage your resident needs to have in place. Many landlords require a minimum of $100,000 or $300,000.
- Verification requirements: When and how you reserve the right to verify the renters insurance is active, accurate, and adequate.
- Potential consequences: Penalties to the tenant for non-compliance, subject to local laws. This may include landlord-enforced liability insurance to be charged to the tenant.
Sample clause*:
Tenant(s) acknowledge(s) and agree(s) to obtain and maintain renters insurance throughout the term of the lease agreement. The insurance policy must provide a minimum of $100,000 in liability coverage. Insurance must be verified before occupancy and upon request thereafter. Failure to comply may result in termination of the lease agreement. Landlord reserves the right to require updated verification of insurance during the lease term.
*Note that this is for informational purposes only and should not be construed as legal advice. We recommend seeking guidance from a qualified legal professional to ensure that your lease language is compliant with local regulations and adequately protects your interests.
Real-life examples:
Let’s take a look at some real leases and the language they use in their renters insurance requirement clause.
Apartment #1
Mid-size building in a city outside Chicago, IL
Large property management company with 50,000+ units managed
4. Renter’s Insurance & Tenant Property. It is understood that all of Tenant’s personal property in the apartment and elsewhere in the building shall be stored at Tenant’s risk. Landlord does not insure Tenant’s personal property against loss for any reason. Storage, if available, is unsecured and is provided at Tenant’s risk. Tenant agrees to have renter’s insurance with at least $100,000 of liability coverage in place prior to moving into the apartment, maintain such insurance during the term of the Lease and name the Landlord as an additional interested party. If the tenant does not provide proof of insurance or fails to maintain insurance at any time during term of the lease, it shall be a material lease violation and the landlord may terminate the lease and/or procure liability insurance and charge back the costs and administrative fees as additional interest.
Apartment #2
High-rise building in Boston, MA
Luxury property management company with 100,000+ units managed
- INSURANCE. Except as required by state law, we do not maintain insurance to cover your personal property or personal injury. We are not responsible to any resident, guest, or occupant for damage or loss of personal property from (including but not limited to) fire, smoke, rain, flood, water and pipe leaks, hail, ice, snow, lightning, wind, explosions, earthquake, interruption of utilities, theft, hurricane, negligence of other residents, occupants, or invited/uninvited guests or vandalism unless due to owner’s omission, fault, negligence, or misconduct.
In addition, we urge all residents, and particularly those residing in coastal areas, areas near rivers, and areas prone to flooding, to obtain flood insurance. Renter’s insurance may not cover damage to your property due to flooding. A flood insurance resource which may be available includes the National Flood Insurance Program managed by the Federal Emergency Management Agency (FEMA).
Apartment #3
Triple-decker in a city outside Boston, MA
Mid-size property management company
32. INDEMNIFICATION AND INSURANCE: The Resident agrees to indemnify, defend and hold the Landlord harmless from all liability, loss or damage arising from any nuisance made or suffered on the premises by Resident, Resident’s family, guests or invitees or other acquaintances, or any carelessness, neglect, or improper conduct of such persons. Subject to applicable law, unless caused by negligence of the Landlord, its agents or employees, Landlord shall not be liable for damage to or loss of property of any kind while on the premises or in any storage space in the building, nor for any personal injury. Resident agrees to obtain and maintain personal property and liability insurance. The landlord’s insurance policy does not cover Residents’ contents in most circumstances.
Start Building Your Renters Insurance Program
Ready to build an effective renters insurance program to eliminate business risk? See how CheckMy Resident can help you automate your insurance verification process and set up monthly monitoring. We’ll ensure your tenants never have a gap in coverage without any additional work for your leasing office.
Want to learn more about what not to do when it comes to renters insurance, and what to do instead? Download our free eBook The Seven Deadly Sins of Renters Insurance for Property Management.
