How would an investor client’s businesses and income be affected if their property sustained damage to the point that it is no longer habitable for tenants? Your investor clients have property insurance that may cover the cost of repairs, but what about the rental income they will lose out on in the process? Repairs can take a while, especially with today’s supply chain issues. It is important for investor clients and their agents to consider Loss of Rents coverage and how it differs from Skip Rent.
REInsurePro offers Loss of Rents coverage that can be added as part of the client’s property policy and may cover lost rental income for up to 6 or 12 months (selected when coverage is added). This type of protection is triggered by a covered loss that renders the home uninhabitable while the damage is being repaired. Covered means that the loss is not excluded on the investor client’s property policy.
Let’s say your client has Special Form coverage, and a burst pipe causes water damage so severe that their tenant must move out of the home while repairs are being made. Since Special Form includes Water Damage, both the repairs and the lost rent may be covered. If your client has Basic Form coverage, neither the repairs nor the lost rent would be covered because Water Damage is excluded on Basic Form. It is important to note that Loss of Rents cannot be obtained in the absence of a property loss.
Loss of Rents is commonly confused with the Skip Rent component of our Tenant Protector Plan. Skip Rent is different in that it may reimburse one month’s rent up to $1,000 if a tenant skips out midway through their lease or is successfully evicted. This coverage can also be triggered by other types of unexpected vacancies like military deployment and untimely death. To reiterate, Loss of Rents is designed to replace monthly rent if an insured peril hits the investor’s property and, as a result, tenants must move out of the home. Additionally, Loss of Rents is not covered if the triggering property loss is not covered.
Loss of potential future income may not be covered. What does this mean? Let’s say your investor client has a short-term/vacation rental become uninhabitable and repairs are expected to take six months. The client could obtain loss of rents for that six-month period, but if they do not advertise the rental to tenants after the six months, they may not be reimbursed. Bookings in place that need to be cancelled due to the repairs may be reimbursable.
Similarly, if the investor’s rental is damaged and repairs are expected to take six months, but the current tenant’s lease is up in three months, they may only be able to obtain loss of rents for the timeframe of the current lease (three months). If there is proof that the current tenant intends to renew their lease, loss of rents may be covered for the full six months.
To learn more, contact your Sales Manager, who would be happy to help!