What should your lease require for tenant insurance?
As the building owner, your policy covers your building and your liability. It doesn't cover your tenant's business, their inventory, or the damage they cause.
But when a tenant's fryer starts a fire or their customer gets hurt, the injured party often sues you anyway. You own the property and the assets. Requiring tenants to carry their own insurance pushes those claims back where they belong.
Ask for two things
Their own general liability, at least $1M per occurrence. So their insurer pays first when a claim comes out of their operations, not yours.
You named as an additional insured on their policy. This is the part people leave off, and it's the part that protects you. If a customer sues both of you, the tenant's policy defends and pays for you too. The claim stays off your record and out of your premium.
Requiring them to have insurance isn't the same as being covered by it. Ask for both, in plain lease language.
Get proof every year
Ask your tenant to provide you a certificate of insurance (COI) which will prove they have coverage. It’s likely that your insurance carrier is going to want to see this to double check that coverage is in place. Collect one at move-in, confirm the limits and that you're actually named, then do it again every renewal.
Almost every insurance carrier is going to require it. You’ll have a hard time getting your own coverage if you tenant doesn’t have it.
Apartments: require renters insurance
Same logic, smaller scale. A tenant whose unit floods the one below has their own coverage to turn to instead of turning to you. It's cheap for them and it kills a lot of disputes before they land on you.
Why it protects you
When there’s an accident, lawsuits start flying around. Even defending a lawsuit that you win can be expensive. Being listed as additional insured on your tenants policy means that insurance carrier is going to step in to help defend you.
Insurers price your renewal on your claims. Every claim you can route to a tenant's insurer is one that doesn't raise your premium or scare off your carrier.
Beyond the legal liability, you’ll sleep better at night knowing that your tenant has coverage to help them land on their feet after an accident.
