Posted by Rebecca Moseley ● Jan 6, 2021 9:00:00 AM
A Beginner’s Guide to Rent Loss Insurance
If current events have taught us anything it’s to expect the unexpected. As a landlord, this is especially true.
Rent loss insurance is a fantastic way to protect yourself from the unexpected. This type of insurance will cover lost rental income when a covered event occurs that makes your rental property uninhabitable. With some landlord insurance policies this coverage is standard but with other policies it is not. See this guide to landlord insurance for more information, and always be sure to check with your insurance provider about your specific coverage.
A Look at Landlord Insurance Basics
As a landlord you are probably already familiar with landlord insurance, but if you’re new to the industry landlord insurance is coverage that is designed to protect you and your investment. Keep in mind, it does not protect your tenant. They will still need their own renter’s insurance. With landlord insurance your property will be covered, and, in some cases, your rental income will also be covered with landlord insurance.
What is Rent Loss Insurance Coverage?
Rent Loss Insurance, sometimes referred to as Fair Rental Value Coverage, covers loss of rental income for events that are covered under your policy that occur while a tenant is in place. If no tenant is in place when the covered event occurs, rental loss insurance will not apply. Further, loss of rental income due to Covid-19 is not covered by rental loss insurance. Other events that would not be covered are losses that require specific coverage such as hurricanes and floods. For example, if your tenant is displaced because of a flood, rental loss insurance can only be used if flood coverage is part of your existing policy. There are variances in different policies, so always work with your insurance agent to determine which events will be covered, and which will not be.
Standard Coverage Amounts
As with all insurance, standard coverage amounts may apply. Some carriers allow for a specific coverage amount such as $12,000 per policy, other carriers will have a term amount such as 12 months of sustained loss.
How Much Does Rent Loss Insurance Cost?
The cost to add rental loss coverage to your insurance policy will depend on the carrier you select.
According to the Insurance Information Institute, landlord policies typically cost 25% more than a standard homeowners policy, but have increased protections. The actual coverage cost will vary, dependent on a number of factors.
According to SteadyMarketplace.com, “In 2018, the majority of landlords reported paying between $800 and $2,000 per property in annual premiums for landlord insurance. The cost of rent loss insurance typically represented anywhere between one third and one half of this annual amount. Rent loss insurance was often found to cost less when bundled with other types of landlord insurance.”
Talk with a local insurance agent to determine the coverage you will need and what the cost will be for this coverage.
A Look at Your Options
There are many insurance carriers to choose from for your landlord insurance. Each will have slightly different coverage options and benefits. Most will offer some form of rental income loss coverage, whether standard or as an add-on to your policy, though they all may call this coverage something different. The best way to determine if you have rental income loss coverage is by speaking with your agent.
Here’s a look at three popular carriers and their landlord rental policies:
State Farm Landlord Insurance has a wide range of coverage and includes Loss of Rent Coverage with their standard policy. According to the State Farm Rental Home Insurance webpage, “the State Farm Rental Dwelling Policy covers accidental, direct physical loss to your rental dwelling and your personal property located there, based upon the coverage provided by your policy.”
The State Farm Rental Home Insurance coverage includes:
• Dwelling Coverage
• Personal Property Coverage
• Loss of Rent Coverage
• Liability Coverage
Safeco Landlord Insurance is a great option for landlords who want to customize and bundle their coverage. According to the Safeco Landlord Coverage Webpage, “Whether you only need a landlord insurance policy with coverage for the most common types of losses or a fully-loaded policy that offers more protection, Safeco gives you the flexibility to choose.”
Safeco Landlord Insurance includes:
• Landlord Protection Insurance Coverage Options
• Open Perils or Named Perils Coverage
• Extended Dwelling Coverage
• Premises Liability Coverage
• Protection from Personal Injury Lawsuits
• Limited Liability Coverage Options
• Additional Valuable Coverage Options
The landlord insurance coverage offered by Liberty Mutual is a great option for landlords with multiple properties who want to customize or bundle their insurance coverage. According to Liberty Mutual, “Liberty Mutual policies are a good fit for most landlords. We cover landlords who own up to 16 units... and we can add your LLC as a named insured.”
Liberty mutual landlord insurance includes:
• Physical Structures
• Personal Property
• Fair Rental Value Coverage
• Inflation Protection
• Premises Liability Coverage
So, do you really need rental loss insurance coverage if it’s not already a part of your policy? If your lender doesn't require it, then the answer really depends on you and your comfort level with risk. The insurance you carry on your rental property could make all the difference in your success as a landlord when the unexpected occurs. Insurance protects you and your investment. It mitigates risk to you as a landlord. Rent loss insurance coverage can keep you afloat should you find yourself in a situation where your rental property becomes uninhabitable, which can protect you from having to default on your loan for your rental property.
Rebecca Moseley is a freelance journalist, marketing consultant, and real estate student. Visit her website at RebeccaMoseley.com to contact her and see more of her work.
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