Landlord insurance typically provides loss of rents coverage along with property damage and liability coverage. The amount will vary from policy to policy, so it's important that you check your insurance policy to see your limits and deductibles.
What does loss of rent insurance coverage include?
Loss of rental income coverage is an important type of business income coverage for landlords, but it does not provide coverage in all situations. Below is a table of situations with covered and non-covered situations:
|Your rental property becomes temporarily inhabitable due to covered perils*||When a tenant fails to or refuses to pay rent|
|Extra expenses incurred during a restoration period||Rental income loss due to an excluded peril*|
Excluded or non-excluded perils will vary from policy to policy. Wind and hail, fires and water damage are all example of perils.
When can you claim insurance for loss of rent?
Your rental income is typically covered if property damage from a covered peril forces your tenant to move out. Rental income coverage lasts up to the limits set by the policy while you are making repairs and the property remains uninhabitable.
You may also be able to claim coverage for extra expenses you incur because of the damage. For example, if a fire makes your rental property uninhabitable, you can file a claim for loss of rent. Likewise, if a tree falls on the unit during a storm or a pipe bursts and floods the unit, you can file a claim for loss of rental income as a result of the damage.
When can’t you claim loss of rents coverage?
Coverage often excludes certain perils, such as flooding and earthquakes. Many policies also include an exclusion of losses due to bacteria or viruses. If you cannot collect rent due to a pandemic, this exclusion means you will not have rental income coverage under your policy. Check your policy for other exclusions.
If you are losing rental income because your unit is vacant, you cannot file a loss of rent claim. Likewise, if your tenants fail to pay rent, your landlord insurance may not cover this loss. According to Investopedia, landlord insurance with a rent guarantee can provide coverage for situations in which a tenant stops paying; however, not all landlord insurance policies include this type of rent protection insurance.
Keep the deductible in mind
Even in cases where your rent loss would be covered, you need to remember the deductible. For example, let's say your business income deductible is $2500. The monthly rent is $3000, approximately $100 per day. Your tenant then moves out for 20 days so you can fix a water damage caused by wind and hail, totaling approximately a business income loss at $2000. This would not be covered by your insurance, since your deductible is higher than the total amount.
Had it been 30 days, totalling $3000, you could potentially file a claim, but keep in mind that you would only stand to get $500 and it would most likely increase your premium when you renew your policy, or result in a failure to renew.
How to make a rent loss insurance claim
If you have experienced a loss at your rental property, contact your insurance company as soon as possible. As a rent loss insurance claim is typically tied to a covered property damage claim (such as a loss due to a fire or storm), you should report your rental income loss when you report the property damage. Provide your insurer with the necessary information, including how much you’re losing and any extra expenses you’re facing.
You may also be able to deduct rental income losses on your taxes. The IRS says to report losses on Schedule E. You can deduct rental income losses if you have income from other passive activities and in certain situations. For example, if you’re making money from one rental property but losing money from another, you may be able to deduct the losses from the income.
Other ways to protect your rental income
Landlord insurance with loss of rent coverage provides important protection, but it’s not the only way to safeguard your rental income.
- Screen your tenants. Some tenants are more likely to break their leases or miss payments. Doing a thorough tenant screening can help you avoid high-risk tenants.
- Set rent at an appropriate amount. If you charge too much, you might have difficulty finding tenants. If you charge too little, you might have insufficient funds to cover emergencies and gaps in tenancy. If you don't know how much rent you should charge, check out our guidelines for setting rent.
- Collect rent through an app. Digital rent collection streamlines the process, which can help you avoid missing and late payments.
- Regular maintenance checks. Maintenance checks are normally done between tenants, but it's a good idea to do an inspection ahead of every season. Your tenant should also report on any damages beyond the normal wear and tear.
- Keep your units occupied. If you have a vacancy, list your rental property on one of the best sites.