Damage to your rental property doesn't just mean increased repair and supply expenses. It also can mean lost rental income while the unit is uninhabitable. Rent loss insurance reimburses a landlord while the property is undergoing covered repairs. For landlords who want even more security, rent guarantee insurance can reimburse landlords for tenant nonpayment.
Rent Loss Insurance
Rent loss insurance reimburses a landlord for lost income while the property is being repaired or rebuilt under a loss covered by property insurance. Although property insurance itself doesn't cover lost rents, a rent loss policy must be paired with a property insurance policy. Traditional property insurance reimburses the landlord for the cost to rebuild and repair damaged property cause by natural events like fire, hail, or storms. Some property insurance policies also covers claims due to vandalism and tenant damage.
Rent Loss vs. Rent Guarantee
Rent loss insurance, or loss of use coverage, reimburses a landlord for lost rent, but only if the lost rent is associated with a covered claim. However, if your tenants skip town or simply refuse to pay rent, rent loss won't reimburse you. Rent guarantee insurance is a supplemental insurance option that can fill the gap. Rent guarantee insurance reimburses landlords for tenant non-payment.
Rent Loss Calculation and Limitations
The rent loss reimbursements your receive from the insurance company many not be the same as your monthly rent check. That's because insurance companies consider the fair rental value of the unit and reduce the check by any avoidable expenses. For example, say that you rent a room for $600 that includes utilities. If you avoid paying $50 a month in utilities while the unit is uninhabited, the insurance company will only reimburse you $550 a month. Insurance companies generally restrict rent loss and rent guarantee payments to a 12-month period.
Mandatory Rent Loss Insurance
In general, landlords aren't required to maintain rental loss insurance. However, landlords who still have a mortgage on the rental unit may be subject to extra restrictions. Some lenders require certain landlords to maintain rent loss insurance coverage equal to gross rent coverage for six months. Check with your lender to clarify what rent loss insurance, if any, you need to carry for your rental unit.
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