What Does Rent Loss Insurance Cover?

April 9, 2018

Renting out a property can bring you significant income. It can also put you in serious harm of financial destruction if you don’t have the proper insurance coverage. What would happen if a fire burned the home down the ground? You would not have anyone renting the property any longer, which also means no rent payments. The only way to protect against this type of occurrence is with rent loss insurance.

What is Rent Loss Insurance?

If you purchase rent loss insurance, you get coverage against certain types of external hazards damaging the home, making it unlivable. Hurricanes, fires, and floods are a few of the occurrences policies may cover. Many policies cover the rent you lose for at least six months after the occurrence. This is all assuming, of course, that the home is not livable during this time.

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Rent loss insurance may provide coverage for the actual damages that occurred as well as the rent you lose. It’s often not a separate policy that landlords must purchase, but rather a part of a bigger package that property owner’s need.

What Rent Loss Insurance Does Not Cover

Rent loss insurance is not protection in the event that your tenants stop paying their rent. Yes, this is a risk, but it’s not one covered by this type of insurance. You would need a separate policy or coverage type called rent guarantee insurance. This insurance pays out if a tenant does not pay and when it is not due to a disaster making the home unlivable.

Do Mortgage Companies Require It?

Just like mortgage companies require homeowner’s insurance for any financed property, most require rent loss insurance for rented properties. It makes sense. The mortgage company wants to make sure that you can still make your mortgage payments even if the face of disaster. Your loan does not go away because the home burned to the ground. You still have to pay it.

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If you are trying to make ends meet and figure out how you will move forward without the rental income, making those mortgage payments could be difficult. With the presence of rent loss insurance, the risk is lowered and the mortgage company can rest assured that you’ll be better equipped to make your mortgage payments.

How Much Will You Get?

It seems fair to assume you would receive the full amount of the rent tenants would pay if you have to make a claim on your insurance. Unfortunately, that’s not the case. The insurance company is in charge of how much you receive. They’ll generally use the following rules:

  • They will determine the fair market value for homes in your area. If you charge more than this amount, you won’t receive full reimbursement.
  • They will deduct any avoidable expenses. These are any expenses you don’t have to pay during the time the home is uninhabitable. For example, if you include utilities in your rent, but you don’t have to pay them while no one lives in the home, the insurance company will deduct that amount from your payment.

If you need rent loss insurance, discuss your needs with several insurance companies. Figure out the right amount that will cover you for at least six months and go from there. Compare policies, coverages, and premiums to help you find the policy that is right for you.

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