There is a common misconception among tenants. They assume that the landlord’s insurance policy will cover a tenant’s personal belongings in the event of an unexpected loss.
Unfortunately, this is a false assumption.
The landlord’s insurance policy only covers the property. The cover does not, in any way, include anything which belongs to the renter.
Fortunately, the Lease Agreement spells out all these terms.
What is a Lease Agreement?
Landlords and tenants sign a document called the lease agreement when renting property. A lease is a legal and binding contract that sets forth the terms of rental agreements in real estate and personal property.
A lease agreement is a legal binding contract between a landlord (lessor) and a tenant (lessee) for a period of time – often six to twelve months or beyond – and which outlines what the tenant will pay monthly for rent.
It is vital to have a basic understanding of what is included in a lease agreement.
What’s included in a lease agreement, often varies with different landlords. However, certain lease basics are common to lease agreements.
What is Covered in the Lease agreement?
A standard lease agreement has certain elements, also called clauses, that spells out the rights and obligations of the tenant, among which can include:
- Address of the landlord.
- Possession of the property including rights of possession of the tenant and non-interference during the lease period.
- The term or duration of a lease, with terms of renewal.
- Landlord responsibilities and tenant responsibilities.
- Rent due date, and rent amount.
- A security deposit (if required).
- Maintenance of the property.
- The consequences for breach of contract; and
- A Renters’ Insurance.
What is A Renters Insurance Lease Clause?
Your landlord’s insurance policy only covers their property and does not, in any way, include anything which belongs to the tenant.
This is where a renters Insurance policy comes in.
A renters insurance is a policy that covers the tenant, their belongings and potential liabilities that may occur on the property while they are living within the premises.
In the case of an unexpected loss, a tenant may experience damages or want to recover them. For instance, a fire destroys an apartment, leaving thousands or millions of dollars in costs.
The tenant is quite unlikely to have the ability to make good on those damages. To guarantee the tenant’s performance under the lease agreement to take responsibility for those damages, the tenant will require a renters insurance policy.
The tenant cannot just say, “Yes, I’ll pay for those accidental damages if they happen,” without a way to fulfill the obligation.
A renters insurance lease clause ensures that the tenant can and will fulfill that obligation, should it come to be necessary. The renters insurance also simplifies the process of getting the money, which will now come from the insurance company and not the tenant.
What Does a Renters Insurance Clause Cover?
Generally, the renters insurance lease clause will require a tenant to have a renters insurance policy. The policy insures everyone in the household and covers personal belongings in the property.
It also provides coverage for a given amount of liability, and lists the landlord or their agent as additional interest or insured so that they’ll be notified if the policy lapses, cancels, or does not remain in force.
As a landlord, these are all reasonable things you can and may ask a tenant.
Should You Include A Renters Insurance Clause In the Lease Agreement?
Property management companies have in-house lawyers. This is not the case with individual landlords. But individual landlords might be limited in their ability to access an in-house lawyer.
This results in confusion about what you can or should require, whether it is legal or not, and whether it is appropriate for residents.
One such confusion is on renters insurance. Is it legal to require a renters insurance clause as part of the Lease Agreement?
The answer is yes.
As a landlord, you may and can make renters insurance part of the lease agreement. It is a standard procedure, and it protects you in many ways.
You can bet that the tenant understands that the landlord has zero responsibility for their personal property in or within the rented property. Of course, you know that. But, requiring renters insurance stresses it and makes sure that they understand.
If a tenant causes loss on the property, your insurance can and will provide coverage for it. For instance, fire is a peril covered on your landlord policy. This is because fire is fire regardless of the cause – and intention.
The insurer will want to get back some of that money and even try to recover your deductible. This is where a renters insurance policy comes in handy.
When the tenant has renters insurance, it will be possible for your insurance company to be able to compensate the tenant, including getting back what you paid for as a deductible.
Is There An Exception To Including Renters Insurance In the Lease Agreement?
Landlords may and can include renters insurance as part of a lease agreement.
But there can be one notable exception. If your tenant is subsidized because they receive funding or the property receives funding, you may not require renters insurance.
Why should the Landlord be listed on the Renters Insurance Clause?
When the landlord requires renters insurance as part of a lease agreement, their insurance company should list the
landlord or their agent as additional interest
First, the landlord needs to be sure that the policy stays in force. Cancellation or lapse of the renters insurance is a lease violation.
Second, if the policy is not in force, then there is no protection available for the tenant or the landlord.
The additional interest designation gets the landlord copies of notifications for changes in policy status. It does not bestow any coverage rights on you that would not be available to anyone at all under the policy.
What If You Violate The Renters Insurance Lease Clause By Not Having A Policy?
As a tenant, you are probably now asking what happens if there is a clause in your lease agreement requiring renters insurance, but you do not have a renters insurance policy?
You will probably be fined. If your landlord is auditing policies and finds out that yours is not in force, you will probably get a fine. If you are in luck, the landlord may give you a notice that you are violating your lease agreement.
Ultimately, not having a renters insurance policy will cost you more in terms of money than just obtaining the renters insurance policy in time.
If, for instance, you are responsible for a given loss, and you do not have renters insurance policy, two things may happen:
First, your landlord will sue you for violating the terms of the lease agreement and for their insurance deductible.
You will not enjoy any coverage for loss of property.
Secondly, the other residents (together with their insurers) will also sue you for their losses, both loss of use and personal property. They will also come for you in the event of any injuries due to the loss.
Finally, Proof of Insurance
The landlord at their comfort or request may require the tenant to provide a certificate or other acceptable evidence of renters insurance policy evidencing its coverage, and a given number of minimum days prior notice of any change in or cancellation of the renters insurance coverage.