Loss of Rents
Rental property insurance articles often focus on losses to tangible property. This article will take a different viewpoint.
Landlords often neglect loss of rents coverage in their policies leaving a valuable and inexpensive coverage behind.
Loss of rents coverage in rental property insurance is an indirect insurance coverage. Indirect insurance coverages hinge on covered direct damage. Let’s take an example. Fire damage to the rental property forces the tenants to leave.
Fire is a covered cause of loss and causes direct damage to the dwelling. The indirect damage is the resulting loss of rent. Loss of rent is an indirect damage resulting from covered direct damage.
Types of limits
Rental property insurance usually offers one of two options for limits of insurance:
- Actual Loss Sustained
- Choosing a limit of coverage
Actual loss sustained coverage can be useful in that the amount of the loss is not limited by a dollar amount. It can come with a time frame which can range from three months to a year. If your policy has actual loss sustained coverage, check the declarations page for a time limit. Be sure to read the coverage description in your policy.
The other option is choosing a limit of insurance which often has no time limit. In addition, when choosing a limit be sure to deduct from your rental income, expenses that will not continue. Insurance companies will excluded these expenses anyway and don’t under estimate the time to secure building permits.
Rental property insurance will likely have very limited or no building ordinance or law coverage. Therefore, losses associated with code changes pose a real threat. If codes have changed and your property is not current, the costs of a simple loss can mount up quickly. As as a result, a kitchen fire in one unit could necessitate rewiring the entire building. Extra costs of rewiring may have limited to no coverage.
If your property is older, seriously consider building ordinance and law coverage and don’t forget to ask how this impacts your rental loss.
In conclusion, do not neglect loss of rents in your rental property insurance policy.