The Crucial Missing Clause In Apartment Leases? Mandate For Renters Insurance



Affords Landlords Greatest Protection,

New Software Programs Facilitate Tracking of Policies


By Melissa Neis

Vice President

Parr Insurance Brokerage, Chicago


An intriguing irony exists today in many standard apartment leases. There are rules that cover a number of essential areas ranging from payment terms and security deposits to pets, smoking restrictions, workout facilities and more. The regulations are designed to protect landlords from financial liabilities and the property from damage, improper egress or other dangers.

But, far too many agreements fail to include a requirement that can protect landlords from even more significant costs. The missing clause? Stipulating that the prospective tenant has renter’s insurance before legally occupying the residence.

Consequences May Be Devastating

Based on our experience, the benefits for landlords to require renters insurance have remained off their radar screens. Over the past few years, we’ve witnessed a growing awareness of its value, but not necessarily a groundswell of action.

This is rather startling as the pitfalls from this inaction can be devastating for a landlord. No matter how many safety and security measures are put in place, accidents can still happen any time. When tenants are uninsured, responsibility for recovery can be unfairly placed on the landlord. Here are some examples from our experience:

  • A Chicago-area renter asked a neighbor to help move some furniture. While lifting a heavy mattress, the neighbor fell and broke his knee, requiring surgery. He didn’t have health insurance and filed a claim against the tenant to pay the substantial medical bills. Unfortunately, the tenant didn’t have renters insurance and barely had any funds to pay the costs. The injured party proceeded to file a claim against the landlord. The landlord’s insurance policy paid, but when the claim added to his existing loss history, his premium rates skyrocketed.
  • A 24-unit apartment building in the Los Angeles area sustained a major fire resulting in substantial damages. Most tenants in the building were older, had lived there for 20 years or more, and wanted to remain in the building. But in addition to losing their possessions, the tenants needed to move as the building no longer was habitable. The landlord spent hundreds of hours helping uninsured tenants find new accommodations while concurrently quarreling with them over who was responsible for replacing their belongings. Although the landlord had insurance to replace the building, his business suffered as a result of the time, energy and stress of assisting uninsured tenants throughout this traumatic event.
  • A tenant started a bath in her unit in Florida, then left the bathroom to answer an hour-long phone call, forgetting she left the water running. The tub overflowed and water cascaded down to the apartment below, creating significant damage to that tenant’s bedroom furnishings, computer and television. Neither tenant had insurance. The tenant in the apartment below sued the landlord to pay for the damages, again a case where the building’s insurance compensated the tenant…and the landlord’s premium rates surged.

We frequently hear horror stories such as these from landlords. And often there are situations when uninsured tenants will argue, rightly or wrongly, that their belongings were  damaged due to an issue with the building, and may even file a suit to recover such costs. Then, the court needs to determine who is liable.

However, tenants with renters insurance can alleviate a number of these potential issues. Such policies provide a source of recovery to landlords for damage to the unit if the tenant is at fault and to tenants for their personal property damage…and a way to avoid any dreaded days in court for both parties.

In addition to higher premiums, legal issues, and the wasteful time spent to handle such matters that a renters insurance policy can prevent, another negative impact is the potential of rent delinquencies. Tenants without insurance can face major cash flow problems when they must repair or replace property with their own funds. This can lead to slow or non-payment of rent.

Why the Reluctance?

Despite potential dire consequences, many landlords still resist mandating renters insurance. Until recently, such reluctance was understandable.  Apartment owners would cite the difficulty to track and the burden to ensure policies remain in place for their many tenants.

Yes, a tenant can display proof of insurance upon the lease signing, but is the policy maintained? Do checks for premiums bounce? Does the tenant allow the policy to lapse? Is the coverage adequate? Another scenario may find a tenant happy to adhere to the mandate, but wanting the landlord to help find an insurance carrier. Yet one more burden to handle.

Another issue, although not as prevailing, is the concern that prospective tenants may decide not to sign the lease because of the insurance requirement and the additional cost, even though such protection is in their best interests. Occupancy rates could decrease, some landlords may believe. This is a shortsighted perspective for tenants to take when for the price of – say, one pizza delivery a month – insurance will guarantee protection against potential financial disaster.

New Software Programs Offer Remedy

Fortunately, available now are new sophisticated programs landlords can offer to tenants that feature software to meet these challenges, particularly in eliminating cumbersome insurance tracking processes. For example, these programs can:

  • Provide landlords real-time access to tenant policy status
  • Deliver instant online notification when a tenant’s coverage goes into effect and if it’s cancelled
  • Enable tenants to report claims directly to the insurance company

One program our firm offers, Suite Protector, also affords significant benefits to tenants. It:

  • Allows tenants to purchase insurance in mere minutes via a user-friendly, web-based platform
  • Features pre-approved enrollment without credit checks or underwriting questions
  • Permits online credit card payments
  • Offers broad coverage including water backup limits, medical reimbursement and emergency living reimbursement, and the opportunity to purchase comprehensive personal liability  and contents protection

To utilize Suite Protector, landlords complete an application for each building, including  a break out of the units. Once underwritten, properties are then pre-loaded into the system and all tenants are automatically pre-approved. No service work is needed by the landlord or the property manager.

Stipulating Renters Insurance

Whether a landlord offers one of these new software insurance programs, or simply wants to ensure tenants have renters insurance, the lease must clearly address the requirement as well as specifying the minimum acceptable coverage. It may be wise to enlist an attorney to review the clause in the lease.

According to Julie Jacobson, principal attorney at Chicago-area based Kovitz Shifrin Nesbit, a leading condo, homeowner and townhome association law firm, in addition to language that requires a policy, the lease should state:

  • A tenant must offer proof that the policy is in effect prior to occupying the unit
  • A landlord may lawfully evict a tenant if the insurance lapses or if the renters fails to have certification of insurance
  • Any legal charges incurred with insurance policy violations to the lease will be the responsibility of the tenant

With proper, legal language in the lease, landlords can proceed to institute this important rule and attain the proverbial win-win that mandating renters insurance can deliver.

As outlined here, the financial benefits for landlords can be significant. They can incur fewer losses and can achieve increased operating income by retaining revenue, i.e., lower insurance premiums, that would have otherwise been applied to uninsured tenant losses to rental units. Simply stated, landlords can stabilize costs and mitigate risks.

In addition, astute landlords can use the insurance mandate as a marketing tool instead of an obstacle to securing tenants. The ease of obtaining the insurance should be viewed as an amenity for tenants. It also represents an opportunity to provide valued counsel to prospective tenants, reminding them that the landlord’s insurance covers only the building and not the tenant’s personal property or personal liability.

Likewise, tenants themselves will be adequately protected, whether they feel it is necessary or not. They can avoid huge financial losses from possible liability issues, damages to personal contents, damages sustained by other tenants due to hazards from the tenant’s unit or the cost from temporary relocation, if needed.

Then there is the benefit for all concerned that does not carry a price tag, but is significant. And that’s peace of mind.



About the author: Melissa Neis is vice president of Chicago-based Parr Insurance Brokerage, an independent insurance agency founded to protect high-net-worth individuals and families nationwide with customized insurance coverage. Through national and global carriers, Parr Insurance provides coverage for high-value homes, automobiles, valuable articles, and collections. Neis can be reached at 773.489.3001 or