Loss of Rent Insurance Guide
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What Is Loss of Rent Insurance?
Loss of rent insurance (also called rent loss insurance or fair rental value coverage) can be a lifesaver for landlords when a property is rendered uninhabitable by an unfortunate event that is covered by the landlord’s insurance policy. Some landlord insurance policies include loss of rent insurance as standard coverage. In other cases, it’s optional coverage with an additional premium charge.
What Does Loss of Rent Insurance Cover?
Loss of rent insurance protects landlords, not tenants. And it only pays a landlord’s claim for lost rent if the apartment (rendered uninhabitable) was occupied at the time of the event. Suppose a tree falls on a rental property and causes extensive damage to an occupied apartment. In that case, the landlord has a valid claim for the loss of rent when the unit must be vacated for repairs. If the apartment that now has a tree in the middle of the living room was unoccupied at the time the tree fell, the landlord does not have a valid claim. The insurance company is not obligated to replace income the landlord wasn’t receiving in the first place.
A loss of rental income is also only insured if the landlord’s insurance policy covers the incident that led to the loss. Rent lost from an apartment damaged during a flood, for example, would be paid only if the landlord has flood damage insurance in the first place.
Be aware that loss or rent insurance does not cover rental income lost due to a tenant’s illness and resulting inability to pay rent. And it does not cover the loss of rent when a landlord voluntarily undertakes major repairs or remodeling that require tenants to vacate their otherwise inhabitable units.
How Much Loss of Rent Is Covered?
There is a lot of variation in the loss of rent insurance offered by different insurance companies. Some companies set a specific maximum dollar amount per policy. Others set a maximum number of consecutive months of lost rent that will be covered for a single event, such as six months or a year at the regular monthly rental rate. You’ll need to discuss this issue with insurance carriers when shopping around for loss of rent coverage.
Who Needs Loss of Rent Insurance?
Some lenders require landlords to carry loss of rent insurance. Their concern, of course, is that landlords might otherwise be unable to make their loan payments if they are unexpectedly deprived of the rent on one or more units.
It makes sense to buy loss of rent coverage even if your lender does not demand it, especially if you are concerned about running your rental business when no rent is collected while repairs are being made. Your financial resources and risk tolerance are also relevant in this situation.
A general rule of thumb is that even if your lender does not require loss of rent insurance, you should think about purchasing it if your rental property is in an area that has experienced flooding, seismic activity, wildfires, or damaging weather events in the last decade. If you want to ensure your entire rental loss is covered, you’ll need loss of rent insurance covering your gross annual rents from the property.
How Much Does Loss of Rent Insurance Cost?
Too many variables are involved to provide a dollar range for the cost of loss of rent insurance. A 2018 study found that the premium for rent loss insurance is typically one-third to one-half of the total premium for a landlord insurance policy.
Shopping around for insurance and doing the necessary due diligence are typically required when acquiring a rental property. Be sure to speak with several different carriers. Or, find a trustworthy broker that can find you the best deal for landlord insurance that includes loss of rent insurance.
The daily ins and outs of running a property based company can be complicated, but it doesn’t have to be with help on your side. Get in touch today to find out how we can help.
