Duplex Cancel
Rental Business - Insurance Question: insurance company wanted my tenants to have insurance too. reasonable?
Hi, my insurance company asked if my tenants have insurance when I started the policy with them 2 years ago. Is it really enforceable? can my insurance company refuse MY claim if THE TENANTS have no insurance in the future!? I mean my tenants can cancel their insurance any time they want without me even knowing about it. Also, my understanding is that my tenants can legally choose not to insure their property as I "inherited" them when I purchase this duplex so I can not suddenly change their condition. Bottom line, is this an issue or just a minor thing the insurance company will not really investigate if there is a claim in the future? THANKS.
The fact that your insurance company is requiring this is to your benefit and the benefit of your tenants. If one of your tenant's was to cause damage to your building (or to another tenant's property) such as a fire, your insurance company would take care of repairing your building. However, after paying for the damage to your building, your insurance company would have the right to go after the person/s who caused the damage--this is called subrogation. If the tenant (the person who caused the fire & subsequent damage) has renters insurance then their renter's policy will reimburse for the damage under the liability portion of that policy. If they did not have renters insurance, they risk getting sued, having their credit ruined, their assets seized and their wages garnished until the judgment is paid off. Renters insurance will also cover theft of the tenants personal property, loss of use, etc. For the premium (which varies between $100 to $200 year depending on how personal property your tenants have & numerous other factors) renters insurance is a bargain. Just as you are allowed to give your tenants periodic rent increases, if your tenants are on a month to month lease (i.e. the original term of their lease has expired) then you can give them 30 day notice (which is allowed in most states--you might want to check on your particular state's law) that they must obtain renters insurance with a minimum liability limit of $500,000, name you as Additional Insured under the policy and have their insurance carrier send you a Certificate of Insurance with a 30 day notice of cancellation provision. This means that if they ever were to cancel or not renew their policy you would be notified so that you can require them to correct the situation.
Your insurance company will not deny a claim if your tenants do not have insurance. However, they can cancel your insurance if they find that you are not meeting this underwriting standard. Most insurance companies that insurance residential investment properties have made this a standard underwriting requirement. Also there is no downside to this--it is essentially a win win to everyone involved. Yes your tenants have to pay renters insurance--but it also gives them peace of mind that their personal property will be covered!
I hope this helps. Good Luck!
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