Essentials of Landlord Insurance Loss of Rent [How to Claim]

As a landlord, you may depend on your tenants’ monthly rent to pay your mortgage, fund home improvements, and generate income.

But what happens if your property is severely damaged by a storm, has plumbing issues, or other problems that force your renters to move out temporarily? These situations may interrupt rent payments. This is where landlord insurance for loss of rental income can prove to be invaluable.

Unlike standard homeowners insurance, which is designed to protect owner-occupied properties, landlord insurance is tailored to meet the specific needs of rental property owners.

Key takeaways

Loss of rent insurance can compensate landlords for lost rental income if their property becomes uninhabitable due to covered events like fire, storms, or other damages.
This coverage is often included in standard landlord insurance policies but may also be available as an add-on.
Loss of rent coverage can help you cover damage from covered perils, costs related to tenant eviction for non-payment, and repairs after tenant damage.
Proactively safeguarding your property can reduce the likelihood of needing to rely on loss of rent insurance.

What is loss of rent insurance coverage for landlords?

Landlords often ask, "What is rent loss insurance, and how does it protect me from financial setbacks?" They feel confused as to why standard homeowners insurance isn’t enough to protect their rental properties and what exactly loss of rent coverage is.

Loss of rental income insurance – as the name suggests – is a type of coverage that can help protect you from financial loss if your rental property becomes uninhabitable due to a covered event. It’s also known as rental loss insurance or fair rental income insurance.

With loss of rent insurance, you could get a financial cushion while your rental property is vacant and undergoing repairs. It acts as a safety net, which can help landlords have a steady income stream during unexpected rental disruptions. The coverage usually applies for a set period.

Most standard landlord insurance policies include loss of rent coverage, but some insurers may offer it as an optional add-on. Therefore, it's crucial to understand what your policy covers and excludes, as this can impact your claim.

For example, landlord liability insurance typically covers injuries or property damage to others but may not include landlord insurance to cover loss of rent unless specifically stated.

How does loss of rent insurance for landlords work?

If a tenant stops paying rent or the property is unoccupied due to damage, landlords can file a claim with their insurers. The insurance carrier will then investigate to confirm the claim’s validity. If approved, the insurer reimburses the landlord for lost rental income up to the policy’s coverage limit.

This payout can help cover mortgage payments, property upkeep, and other financial obligations, easing the financial burden during tough times, which could help you expand your real estate portfolio.

Does landlord insurance cover loss of rent?

Most of the time, landlord insurance covers loss of rent. It can help protect landlords from losing rental income if their property becomes uninhabitable due to events such as fire, storms, or other covered perils. The coverage may also protect landlords if a tenant fails to pay rent.

However, some insurance providers don’t include loss of rent and other landlord insurance coverage options like property damage and liability coverage in their standard policies. Instead, they offer such coverage options as a separate add-on.

As a landlord, if you’re wondering whether you need landlord insurance or not, here are a few things to consider:

Does it cover loss of rent, property damage, and other standard coverage options?
How much does landlord insurance cost?

What does a landlord’s loss of rent insurance cover?

Loss of rent insurance can be an essential safety net for property owners in various situations.

Although coverage can vary based on your landlord’s loss of rent insurance policy, here are a few scenarios it typically covers:

Damage from covered perils

If your rental property is damaged or destroyed by a covered peril, such as a fire, hurricane, or other natural disaster, loss of rent insurance can compensate for lost rental income during the repair period.

For instance, if a fire caused by an electrical fault renders your property uninhabitable, this insurance can help you recover rental income while the property is being restored.

Tenant eviction for non-payment

Sometimes, evicting a tenant who doesn’t pay rent can be time-consuming and difficult. This is particularly true for New York and Vermont, where the tenant eviction process is notoriously complex and lengthy. Landlord insurance could help you cover the loss from non-payment of rent during the tenant eviction process.

Repairs after tenant damage

When a tenant causes significant damage to your property – temporarily making it uninhabitable – loss of rent insurance can help cover the gap in rental income while repairs are made. However, it’s crucial to verify whether your policy includes this coverage or if you need additional protection, such as rent guarantee insurance.

What does a landlord’s loss of rent insurance not cover?

Wondering what landlord insurance does not cover – especially with the loss of rent? While landlord loss of rental income insurance can offer financial protection in certain cases, there are situations where it may not be enough.

Here are some exclusions every landlord should know.

Tenant fails or refuses to pay rent

So, does landlord insurance cover tenant damage or unpaid rent? Your landlord insurance may help cover the loss, but it can vary depending on the type of coverage and damage. However, rental loss insurance does not cover missed rent if a tenant simply stops paying while the property is still habitable. In this case, you should consider buying rent guarantee insurance - landlord insurance for non-payment of rent. This type of insurance also covers tenant-caused damage, pet damage, or early lease breaks.

Loss due to an excluded peril

If your rental income loss is caused by a peril that your landlord insurance policy doesn’t cover, you likely won't be reimbursed.

For example, most standard policies exclude flood damage. So, if a flood makes your property uninhabitable, you may not recover the lost rental income.

Other exclusions

It's important to know that loss of rent insurance won’t cover ongoing expenses such as mortgage payments, property taxes, or utility bills. This coverage also doesn’t protect tenant belongings or their relocation costs. Tenants should have their own renters insurance to handle those expenses.

Things to consider before purchasing loss of rent insurance coverage

When choosing loss of rent insurance, there are numerous factors landlords should consider to make sure they choose the best policy for their needs:

Coverage

The coverage limit is the maximum amount your insurer will pay in the event of a claim. Make sure to evaluate your rental income carefully and choose a limit that adequately protects your financial interests.

Policy exclusions

As a property owner, you should know what rental interruption insurance doesn’t cover. Some exclusions may include damages caused by tenants' illegal activities or natural disasters such as floods. Ensure your policy covers the risks you are most concerned about.

Waiting period

Some loss of rent policies come with a waiting period before benefits kick in. This means you may need to cover the initial weeks of lost rent out of pocket. It’s best to check that the waiting period aligns with your financial planning.

Tenant screening requirements

Insurance providers may have specific tenant screening criteria that you must meet to qualify for loss of rent coverage.

Conducting thorough tenant background checks can help minimize the risk of unpaid rent and property damage.

Cost of Insurance

The cost of rental loss insurance can vary based on coverage levels, location, and other factors.

Before you decide, weigh the annual premium costs against potential benefits to determine if your rental properties are worth the investment.

Insurer reputation

Whether you own multiple properties or a single home, every landlord should choose a reputable insurer known for processing claims efficiently to avoid unnecessary delays.

Tips on how to safeguard your property against loss of rental income

While rental loss insurance offers valuable protection, taking proactive steps can help reduce the risk of lost rent.

Here are some recommended tips to consider:

Install and maintain smoke alarms: Place smoke alarms in every room and test them regularly. Working smoke alarms can detect fires quickly, potentially reducing smoke and damage. Remember to change the batteries every six months and replace the alarms every 10 years.
Invest in whole-home surge protection: Installing a surge protector on your property’s main electrical panel can protect your wiring from power surges, especially during lightning storms.
Schedule seasonal inspections: While maintenance checks are often done between tenants, consider scheduling inspections before each season. Encourage tenants to report damages beyond normal wear and tear.
Screen your tenants thoroughly: Carefully screen tenants to avoid those who may break leases or miss payments. A thorough screening process can help you find reliable renters.
Emergency repairs fund: Set aside an emergency fund for quick repairs to minimize downtime if your property becomes damaged.
Consider additional coverage: For properties in high-risk areas, consider additional coverage like flood insurance to protect against natural disasters.
Maintain an updated lease agreement: Ensure your lease agreement includes clauses that protect you against unauthorized tenant actions that might render your property uninhabitable.
Set the right rent price: Charging too much rent can make it hard to find tenants, and setting it too low may leave you without enough funds for emergencies or vacancies. If you're unsure how much to charge, refer to these rental guidelines by the U.S. General Services Administration.
Use a digital app for rent collection: Collect your rent through an app. Not can it help make the rent collection process easier, it may help reduce missed or late payments.
Minimize vacancy periods: To keep your units occupied, list your rental property on top rental sites as soon as you know it will be vacant.

Still have questions?

Want to know more about landlord loss of rent insurance? Here are some frequently asked questions:

Does homeowners insurance cover lost rent?

No, homeowners insurance doesn’t cover lost rent. Home insurance is designed for owner-occupied properties and typically covers personal property, liability, and structural damage. Landlords should consider dedicated landlord insurance policies that include loss of rent coverage for their rental properties.

How to calculate loss of rent insurance coverage?

To calculate loss of rent insurance for a commercial property, consider the monthly rental income and the average repair time for damages. Multiply your monthly rental income by the estimated months it would take to repair or rebuild the property after a major loss. This will give you a rough estimate of the coverage amount you need.

How much does loss of rent insurance cost?

The cost of loss of rent insurance can vary widely based on factors like property location, size, and risk factors. On average, expect to pay between $100 and $300 annually for this specific add-on on top of your regular landlord insurance premium.

How should a landlord make a loss of rent insurance claim?

To file a loss of rent insurance claim, you’ll have to document the cause of the property damage, provide proof of lost rental income, and submit the required forms to your insurance company. Stay in contact with your insurer to track the progress of your claim and ensure timely reimbursement.