The Importance of Loss of Rental Income Insurance

As a landlord, you may rely on your tenants’ monthly rent payments to cover your mortgage, fund unit improvements, and generate income. But what if your property is badly damaged during a storm, experiences plumbing issues, or has other problems that force your tenant to temporarily relocate? These incidents could cause their rent payments to be interrupted—and that’s where loss of rental income insurance can help. 

In this article, you’ll learn:

• What loss of rental income insurance is
• When loss of rental income insurance provides coverage
• What isn’t covered by loss of rental income insurance
• Tips for protecting your rental income 

What Is Loss of Rental Income Insurance? 

Loss of rental income insurance—also known as fair rental income insurance—is a type of coverage that can help protect you from the financial risk of your rental property becoming uninhabitable due to an insured peril. With loss of rental income insurance, you can receive a layer of financial padding while your rental property is vacant and undergoing repairs. 

Most standard landlord insurance policies include loss of rental income coverage. However, some providers offer it as a separate type of additional coverage. 

When Loss of Rental Income Insurance Provides Coverage 

If you experience a loss of rental income due to an insured peril, loss of rental income insurance can replace any rent payments you’re unable to collect. Covered perils vary depending on the type of landlord insurance policy you obtain. For example, DP1 is a named peril policy that typically provides coverage in the event of:

• Fire
• Lightning
• Smoke
• Explosions
• Windstorms and hailstorms
• Vehicles
• Aircraft
• Riots or civil commotion
• Volcanic explosions

Therefore, if you have a DP1 policy and your property becomes uninhabitable due to one of the above perils, you may be able to file a claim for lost rental income. Loss of rent is typically covered until repairs are complete or a maximum of 12 months—whichever amount of time is shortest. You can also usually collect on this type of coverage whether there was an existing tenant on the property or not. 

What Isn’t Covered by Loss of Rental Income Insurance

While loss of rental income insurance can provide you with financial protection under certain circumstances, there are some situations where this type of coverage likely won’t be sufficient. 

A Tenant Fails or Refuses To Pay Rent

Loss of rental income insurance doesn’t provide coverage if a tenant fails or refuses to pay their rent while the property is habitable. However, rent guarantee insurance can help in this situation. This type of coverage can also offer protection from damage done by tenants or their pets, and lease breaks. 

Rental Income Loss Due to an Excluded Peril 

Loss of rental income due to excluded perils—which are determined by your landlord insurance policy—likely won’t result in rental income reimbursement. For example, if your policy doesn’t cover flood damage (most standard policies don’t) and a flood causes your rental property to be uninhabitable, you may not be eligible to recover the loss of rental income. 

Other Exclusions

It’s important to note that loss of rental income insurance doesn’t protect your monthly mortgage payments, property taxes, utility bills, or other expenses that would continue regardless of whether or not a tenant was living in your rental property. In addition, this type of coverage doesn’t cover damage to a tenant’s personal property, or their relocation costs. Instead, tenants should have a renters insurance policy to help cover those expenses. 

Tips for Protecting Your Rental Income 

While loss of rental income insurance can provide you with important protection, taking the following steps proactively can help minimize the risk of lost rent: 

• Install smoke alarms in every room and test them regularly. Smoke alarms can help limit the amount of time a fire remains undetected, and in turn, minimize smoke and fire damage in your rental property. Smoke alarm batteries should be changed every six months and all alarms should be replaced at least every 10 years. 
• Invest in whole-home surge protection. Installing a whole-home surge protector on the property’s main electrical panel can minimize the effect of power surges on your wiring, including those that occur during lightning storms. 
• Conduct regular maintenance. As a landlord, you might only conduct maintenance checks when your rental property is unoccupied between tenants. However, conducting regular maintenance can help catch any issues before they turn into larger problems. 

Finding the Right Coverage

Having loss of rental income insurance can ensure that you’re protected if an insured peril makes your rental property uninhabitable. While most landlord policies provide this type of coverage, it’s important to talk to your insurance company to make sure you have the proper coverage in place. 

If you’re looking for landlord insurance, Obie can help. Obie’s simple quote request process will match you with the right insurance for your unique property, making sure you’re properly protected.