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Rent Loss Insurance – Is it good or bad?

Posted on: 04th Apr, 2004 10:55 pm
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
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.
Posted on: 10th Oct, 2008 11:13 pm
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
Posted on: 11th Oct, 2008 02:07 am
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.
Posted on: 15th Oct, 2008 07:35 am
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.
Posted on: 16th Oct, 2008 02:08 am
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.
Posted on: 22nd Oct, 2008 08:03 am
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
Posted on: 23rd Oct, 2008 02:31 am
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 second mortgage is more that i can bear and i would hate to default on my mortgage and lose the rental home. thanks
Posted on: 24th Nov, 2008 05:57 am
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.
Posted on: 24th Nov, 2008 11:38 pm
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.
Posted on: 01st Feb, 2009 07:28 am
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.
Posted on: 06th Feb, 2009 05:16 am
Yes it will cover the rent while ur unable to live there.
Posted on: 10th Feb, 2009 11:14 am
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?
Posted on: 22nd Mar, 2009 05:51 pm
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.
Posted on: 22nd Mar, 2009 10:57 pm
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.
Posted on: 23rd Mar, 2009 01:30 pm
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.
Posted on: 23rd Mar, 2009 09:35 pm
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