What is loss of rents insurance?

An insurance product that helps compensate a landlord for loss of income in the event that a rental property become uninhabitable due to a covered loss – e.g., storm damage or fire damage – is available from many business insurance companies. This type of coverage may also be called a Loss of Income Policy, Rent Loss Policy, Fair Rental Protection Insurance, Business Interruption Coverage, Business Income Insurance or another designated product name by the insurer.

A landlord’s standard property insurance policy pays for property damage that occurred as a result of a covered event. A standard policy does not compensate a landlord for the financial damage caused by tenants being relieved of their obligation to pay rent when their rental unit is damaged and becomes uninhabitable. A landlord in this situation suffers loss of business income. A loss of rents coverage would compensate the landlord for the revenue the landlord would have earned had the covered event not occurred.

You should check with your current insurance carrier to determine if loss of rents coverage is included in your landlord package or whether it is available as an add-on to your basic policy. You need to know if the loss of rents coverage is based upon the fair rental value of the rental property (as determined by the insurance carrier) or is based upon the tenant’s actual rent amount at the time of the event. In a situation where the tenant is paying above market rent, you will likely be out the difference between the actual rent and market rent.

You may also want to determine if there is language in the loss of rents policy (whether included in your landlord package or as the separate add-on policy) that may cover your continuing operating expenses on the rental unit until such time it can be returned to the tenant for occupancy. Some mortgage lenders require a landlord to carry rent loss insurance in addition to the requirements for property and liability insurance. This is another reason to confirm your current coverages with your insurance agent.

Rent loss coverage does not cover lost rents due to vacancies, evictions, or ordinary tenant turnovers. Damage to rental property due to owner negligence will not be covered.

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