How would your businesses and income be affected if your property sustained damage to the point that it is no longer habitable for your tenants? As an investor, you have property insurance that may cover the cost of repairs, but what about the rental income you will lose out on in the process? Repairs can take a while, especially with today’s supply chain issues.
The NREIG program offers Loss of Rents coverage that can be added as part of your 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 your property policy.
For example, let’s say you have Special Form coverage, and a burst pipe causes water damage so severe that your 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 you have 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 (rental loss insurance) is commonly confused with the Skip Rent component of our Tenant Protector Plan. Skip Rent is different in that it may reimburse you one month’s rent up to $1,000 if your tenant skips out on you 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 your 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 you have a short-term/vacation rental become uninhabitable and repairs are expected to take six months. You could obtain loss of rents for that six-month period, but if you do not advertise the rental to tenants after the six months, you may not be reimbursed. Bookings in place that need to be cancelled due to the repairs may be reimbursable.
Similarly, if your rental is damaged and repairs are expected to take six months, but the current tenant’s lease is up in three months, you 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 or add Loss of Rents coverage to your property policy, contact your CSA, who would be happy to help!