small landlord insurance question

December 18, 2017 9:58 AM

I am renting an attached studio at my house. How much insurance coverage do I need?

YANML/insurance agent: I am renting out a converted garage, a nice studio apartment attached to my residence. I've been doing that for over a decade and was an apartment manager before that. On the tenant/landlord side of the equation, I think I'm doing all the right things.
I recently read a Mefi thread about car insurance and as a result raised my coverage. I recently received an application to rent from a pregnant woman. I began to muse about child-proofing, then to liability and then to, geez, I wonder if I'm competently covered for any potential liability?
If I was to have an incident in the rental that was severe enough to trigger a claim and then subsequently informed my insurer that this was a rental, what might I expect, what's the potential down side? I have not insured the rental as a business. I have a standard policy based on the replacement value of the house.
I will not rely on any comments here as gospel and YAMNL. The unit is vacant at the moment so this is an ideal time to get this aspect understood and upgrade my insurance if need be. I plan to continue doing this for the near to medium term. Thanks.

posted by diode to Work & Money (9 answers total)

You will want $X of liability insurance on top of the fire/vandalism/known peril/flood typical property insurance stuff but how much will vary, based on local laws concerning personal liability, your own levels of risk acceptance. When my condo became a rental, I just called up the company that issued my homeowner's policy and we talked through a couple scenarios and I settled on a policy based on the requirements of my condo board (not relevant to you, of course) and the conversation. A standard landlord policy covers the building, the fixtures (which has a specific legal meaning in this context), liability and medical for injuries occurring on the premises. Generally, mortgage companies will require a policy cover the remaining loan balance of any insured property. The policy can cover loss of rental income or other business problems, but that may not worth the extra premium to you. I don't carry it, personally.

You will want to talk to the company that holds your homeowner policy before you lease an attached unit, in any event, because it may be necessary to have an attached rental as an endorsement (that is, a special part of) your homeowner's policy, rather than a separate policy.

Absolutely encourage your tenant to carry their own renter's insurance.
posted by crush at 11:01 AM on December 18, 2017 [1 favorite]

Just FYI, it's illegal to discriminate in housing rental based on family status.
posted by praemunire at 11:08 AM on December 18, 2017

Just FYI, it's illegal to discriminate in housing rental based on family status.

Depending. Owner-occupied units with four or fewer units are exempt from federal anti-discrimination laws. There may be local laws that cover this and it's useful to be aware of them. My mom rented out the other side of our two-family for years and wouldn't rent to families with young children (or pregnant families) because of the lead paint. This was legal. Your own moral compass may also vary, of course.
posted by jessamyn at 11:18 AM on December 18, 2017 [5 favorites]

As far as I'm aware, it is perfectly legal (and probably smart) to require the renter to hold their own renter's insurance policy. I've signed leases that require it before. So that's something to consider, as well.
posted by mosst at 11:54 AM on December 18, 2017 [1 favorite]

First of all, yes you can require renter's insurance but they can also cancel it the day after they show you proof of insurance so don't take that into consideration.

Get an umbrella policy. It's a liability policy which sits over your other insurance (thus "umbrella"). Most require your other policies to be at certain limits before they can be in place. And make sure that it covers a rental (some companies will not cover rentals under their umbrella policies).
posted by rabbitrabbit at 12:15 PM on December 18, 2017 [1 favorite]

Best answer: I am a landlord on the side and I've had extensive conversations about this with insurance agents, realtors, a lawyer, and other landlords. The answer is more complex than you'd expect but it all boils down to who the lawyers (insurance lawyers or the family's lawyers) will go after if something happens. First they go after renter's or homeowner's insurance because it's the path of minimal resistance. Next they look at you and determine if you are worth suing - were you negligent, do you have personal wealth, do you own a profitable business, etc. If you are worth suing, then you should have an umbrella insurance - they can cost as little as a couple hundred a year for a million or more in coverage. The catch is, the umbrella insurance provider won't sell you coverage unless they consider you sufficiently covered already, which is at a minimum renter's insurance on top of homeowner's insurance that includes landlord coverage - you didn't do the the latter if I am reading you correctly? So I would first call your homeowner's insurance and expand your coverage with them to include your little rental business, and then call the umbrella insurance people to see what else they need from you to issue additional umbrella coverage. However, according to the lawyer and the insurance agents, there is nothing that can protect you fully - if something truly awful happens then all bets are off when human jurors get involved. (I've followed and answered a few questions re. tenant/landlord issues here on Metafilter and boy, do people just love to hate on landlords.)
posted by rada at 12:46 PM on December 18, 2017 [1 favorite]

I should probably add that I was also advised that impeccable communication goes a long way toward preventing catastrophic legal action. Even if a tenant makes the most preposterous claim, you still need to respond promptly and professionally. My personal policy is, every text or email I send, I pretend it's being read out loud by a hostile lawyer in front of a jury.
posted by rada at 1:12 PM on December 18, 2017 [1 favorite]

Rada’s points are valid but he misses one important one: If an accident happens the injured person cannot “go after” homeowner’s or commercial liability insurance without suing the landlord, unless the fault was so clear that the liability insurer will pay up right away. And renter’s insurance is not “on top of” insurance covering the landlord. Renter’s insurance covers loss of the tenant’s property and liability claims asserted against the tenant. It is irrelevant to liability claims by the tenant or his guests against the landlord.
posted by yclipse at 6:37 PM on December 18, 2017

To belabor the point made by yclipse above: yes technically and in an ideal world where everyone plays fair, renter's insurance covers claims against the tenant while landlord's homeowner's insurance covers claims against the landlord. However I was told by the lawyer and the insurance agents that in the real world the lawyers will go after whomever is easiest to get money from. One insurance agent told me a story about a tenant mother who left the stove on and ran out the house to get some groceries leaving the baby inside. The baby burned down with the house. The mother was poor so no one went after her, the lawyers went after the landlord and somehow he ended up paying millions in damages for what on the surface seemed to be clearly not his fault (I can't remember the exact details but I do remember that they made legal sense at the time that the story was told to me).
posted by rada at 7:09 AM on December 19, 2017