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Rent Loss Insurance – Is it good or bad?

Rent Loss Insurance offers coverage for loss in rental income or rental value due to property damage by external hazard which therefore makes it unsuitable for habitation. The policy is often available as a part of hazard insurance on your investment/rental property.

Is rent loss insurance mandatory?

Most of the mortgage companies require you to purchase this policy when you buy your investment property. As per the lending guidelines put forward by the Investor Company Freddie Mac, it is not optional but mandatory for borrowers to purchase rent loss insurance policy. In case of more than one investment property, the company requires insurance policies for each rental units independent of the net rental income.

The insurance premium provides coverage for damages to the property as well as if you lose rent on account of the damage. Usually the policy covers minimum of 6 months of gross rental income when your rental unit is unsuitable for habitation due to hazards such as fire or other damages.

What are the factors affecting rent loss coverage?

The insurance premiums are calculated by sorting out the variables at the rental unit into various categories. The time frame for receiving the coverage and the coverage itself are limited. But when your property is damaged, you can receive rent loss payments till you reconstruct the damaged portion and find a better tenant for the rental unit.

The net operating loss or the amount of rent loss insurance depends on the gross monthly rental income after deducting the following items:

  • Taxes
  • Mortgage payments
  • Insurance premiums
  • Maintenance costs
  • Expenses on utilities
  • Vacancy factor for rental units in your area.

If rental income is your primary source for paying off the mortgage on your investment property, then it's a wise decision to go for the rent loss insurance coverage. After all, it compensates not only for property damage but also if you lose the rent.

Related Forum Discussion[list:548c018406][*:548c018406] Should I enlist Rent Loss Insurance in the binder?[*:548c018406] Homeowner's Insurance[/list:u:548c018406]

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I have an office or residential flat on the 8th floor of a building, there is a fire on the ground floor and 1st floor. this leads to the building being unable for occupancy i.e access is denied. Will my policy cover me under loss of rent clause.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi inder!

Welcome to Forums!

If you have a rent loss coverage, you can be covered for it. But you should also note that when your property is damaged, you can only receive rent loss payments till you reconstruct the damaged portion and find a tenant for the rental unit.

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you have a tenant who defaults on the rent payment and you in the eviction process will rent loss coverage cover the months of non-payment? If not, is there any sort of insurance that will cover you in this event.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Swan,

Welcome to forums.

I think a rent loss insurance will also cover the non-payment of rent for months. However, to be on the safer side, you can also contact your insurance agent and get it clarified.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

if the comercial store tenant re-locates to another place and does not re- occupy the local after the repairs are complete, does the insurance cover for the rental loss during the period to find a new tenant ? say up to a max of 12 months since the fire incident.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi martucci joe!

In my opinion, you could have got the rent loss insurance if the property would have become unsuitable for habitation. But in your case, you have already completed the repairs and it is suitable for habitation. Why don't you search for another tenant for your property?

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My tenant moved out in June 08. My plan was to spruce up the place and makie minor repairs for a new tenant. On July 4th I suffered a fire caused by fireworks. To date the insurance company repairs are still in progress. I have not been able to rent since July. Can I get loss of use payments even though I didn't have a tenant at the time of the fire? Please help, this [url=http://www.mortgagefit.com/second-mortgage.html]second mortgage[/url] is more that I can bear and I would hate to default on my mortgage and lose the rental home. Thanks

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Lady Di,

If you are not getting a tenant for the reason that the property has been damaged due to a fire, then I think you will get a rent loss insurance. You need to contact the insurance company and check with them what they have to say in this regard.

Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If I have a four family home, I live in one unit. If I buy the rent loss insurance will it cover me if one of my tenants leave and I can not rent the unit out in one month? I need that money to pay the mortgage.
Please let me know how much rent insurance costs... Property in New York.

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

How's the condition of your rental unit? You won't get the coverage simply if your tenant leaves away. If your property is damaged and you cannot get a suitable tenant till you make the repairs, then rent loss insurance can offer your coverage.

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m.snover92571's picture
m.snover92571 | Joined: February 10, 2009 09:53 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Yes it will cover the rent while ur unable to live there.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I had a tenant move out. A family member of his refused to leave and I had to get him taken off the property because he was really treaspassing. The house is trashed and full of his stuff. Will my rent loss insurance pay to have his stuff moved and fix some of the things this squater has damaged?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I guess you would be receiving the benefit of rent loss insurance in this case. However, I would suggest you to consult your insurance agent in this case.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

ana, thank you for making sense.

it's my opinion that the first place to go with questions about insurance - be it rent-loss or hazard or life - would be the agent that sold the policy. if he or she can't be found, then the company that issued the policy would be the next logical contact.

i guess MortgageFit has a reputation for expert advice, since people seem to come here first a lot of the time.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Wells Fargo is requiring me to get insurance that pays if I just have an extended vacancy for any reason, not just the place being uninhabitable. This is hard to find. Ever heard of this? Thanks.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Mike, as far as I know, such an insurance is available for commercial properties. I don't think they are available for residential properties.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We rent our beach house in Galveston. Lately the water, phone, internet, sewage, garbage collection, and electricity go out periodically because of the damaged caused by Hurricane Ike. The renters want their money back when they can't get water or electricity. There is no damage to the beach house itself. We are covered for "loss of use or rental" up to $23,000. Will the company pay?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

bernard, this is not a question for our "experts," as we have no notion of what your policy covers. you need to go straight to the insurance company and ask these questions.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My mortgage company requires Rent Loss Insurance at the time of closing. I contacted my insurance agent and he said they do not issue Rent Loss Insurance until the property is rented. He said he can provide a quote. I need to get this insurance within the next 2 days. Any suggestions/recommendations where I should go to obtain this insurance? I am in the Grand Rapids, Michigan area.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi DJG,

I have just given my answer to your question at http://www.mortgagefit.com/discuss/rentinsurance-binder.html#96737.

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Commercial bld are required to havce rent/loss insurance depending of the type of income /bld size +.
Residential income property, not listed as "comercial" property would therefor be excluded from this requirment? Also, city state have different requirment for commercial bld - bld code, inspection!

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Is there a list of insurance companies who offer rent replacement?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

My apartments(a house wich was turned into 2 apartments) had a fire in one apartment. I have full insuance including loss of income.Now the zoning board said that even though the building had a grandfathers clause to be 2 apartments it has to be repared into a single family residence since it was damaged.Is my insurance company obligated to pay for one rental for a year since it is going to be repared into a single rental?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I feel they should pay you the rental for a year. Nevertheless, I would suggest you to check out with an attorney in this regard and he would guide you regarding your rights.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have a farm owners policy which covers 2 rental properties. We just had water damage and they had to tear out the walls and floors in the kitchen and bathroom. It was not rented at the time of loss - this past Monday is when the loss occurred, but did have 2 people that were interested. Would our policy cover loss of rents? It looks like there is a premium charged for it on our policy and was wondering how this coverage works.

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

As far as I know, the rent loss insurance will cover you in this case because it not just covers loss of rental income but also the damage to the property. Your coverage would be calculated based on the net operating loss i.e. after subtracting your property taxes, mortgage payments, maintenance costs, utilities and insurance premiums from your income.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi. We fully own two duplexes (no mortgage payments) which we rent out. Due to the economy & taxes we're struggling. I know it's a foolish plan, but legally can we delay having insurance on these paid buildings for a few months? If we due lax on it for a few months and then want to restart insurance, is there a penalty like there is in car insurance? Please advise. Thanks!

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Tiffany!

Welcome to forums!

If you do not have an insurance coverage, you may have face issues if there comes a catastrophe like a sudden earthquake or a storm or fire. It is better to have insurance on your properties rather than delaying it.

As far as penalties are concerned, it will depend upon your insurance provider and your agreement whether or not you would be charged penalties.

Sussane

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

It was me above! Just forgot to log in! :)

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I run a rental management company for condos in 3 properties, and we recently had a large water leak due to a burst pipe outside a unit's drywall - between their wall and the external wall. It put about 6 of our units out of order for 1-2 months for serious water damage - would this be covered by Rent Loss?

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi EmmyLou,

The damages that you've incurred in your property will be covered by the condo insurance. However, if you could not rent the property for 1-2 months due to serious water damage, then it may be covered under the rent loss insurance. I would suggest you to read through the fine print of your rent loss insurance policy and check out the type of coverage you would receive. Read through the clauses in your insurance policy and look for the exclusions as well.

Thanks,

Jerry

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thank you, Jerry. Our condo insurance covered the damage, but not the loss of rental income. If our owners rent short term (vacation rental), are there rent-loss policies out there that would cover that short amount of lost revenue? Or do they generally only cover long-term rental situations?

Thanks!

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi EmmyLou!

Welcome to forums!

It's not easy to get insurance for such vacation rental purposes. Very few carriers are now offering such policies. Once you'd offer your home for short-term rent, it will prove that you're in business. You're actually offering your valuable asset to be used by your customers. Your rental income might just be a bit lower than you expected.

P&C insurance on the primary policy that you have is not aimed at covering your rentals and hence it may not be sufficient to cover your property. You must consult with a local agent and get things clarified before you sign-up. If you're not covered to face problems with your renters, then you may end up paying thousands out-of-pocket.

These days landlords would often opt for loss-of-rental-income insurance. If you want to rent it out for commercial purpose you may opt for commercial landlord insurance or commercial property insurance. Some of the big insurance carriers may offer such rent-loss coverage e.g. Metlife.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I"VE BEEN LOOKING FOR A RENT LOSS INSURANCE, ANY COMPANY IN MIND THAT OFFERS THESE? (AND BOND INSURANCE IF POSSIBLE)

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Guest!

Welcome to forums!

You can contact the local insurance companies in order to find out if they offer rent loss and bond insurance. I'm sure you can get better help from them in this regard.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

can a rent loss policy be purchases separately from the fire policy?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Under the coverage section of the homeowners insurance policy. Is Rent Loss Insurance the same as Loss of Use or are they two different coverages

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi Shirley!

Welcome to forums!

By nature, the Rent loss insurance and the Loss of Use insurance is similar. However, the difference lies in the fact that rent loss insurance comes into play in case of a rental property whereas the loss of use insurance will be triggered in case of your own primary residence.

Feel free to ask if you've further queries.

Sussane

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You say "net operating loss or the amount of rent loss insurance depends on the gross monthly rental income after deducting the following items: mortgage payments. . ."
Question: If you are relying on rents to pay the mortgage but have to deduct the mortgage payment from the calculation, how are you supposed to pay the mortgage while the property is being reconstructed?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You will have to make the payments for your construction loan though the home is being reconstructed. However, if you have a rent loss insurance, then it will help you in paying off the mortgage.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If you deduct the taxes, mortgage payments, ins. premiums, maintenance costs and utilities from the gross monthly rent, there could be zero or a negative figure. Does this mean you couldn't get rent loss insurance in that case? Won't it help cover the mortgage payments?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You should contact your insurance agent and he will be able to guide you in a better manner in this regard.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Our tenants had a fire in our rental house. All the damages took almost 19 months to correct and make the house liveable. The insurance company only paid for 6 months loss of rents. Yet, their approved contractor didn't even start dry wall at that time. Is this something we should dispute?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

You should contact an insurance attorney who will help you in dealing with this matter. He will let you know whether or not you will be able to dispute the whole matter.

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sabrinatoss's picture
sabrinatoss | Joined: January 16, 2011 09:00 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

This is a great article. Very informative and helpful especially for those people who are stressed out of so many insurances to pay.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I need a 6 month renatl loss ins on my rental property. sell this insurance.

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi mr mike,

Your query is not clear to me. Please post your query in details. This will help us in giving you suggestions in this matter.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

who sells loss of rent insurance? Is it different than loss of use insurance on rental property? mtg company wants me to have it and I can't find it

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi lisa,

Many mortgage companies require you to have rent loss insurance when you purchase your rental property. You can contact the local insurance companies or your insurance agent and he will help you in getting a loss of rent insurance.

Thanks

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Don't understand why you have to have rent loss insurance is you
purchase a property, your daughter lives in the property and you
don't charge rent.

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