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Does Your Landlord Insurance Include Loss of Rents Coverage?

Insuring against loss of rent
Including Loss of Rents in building coverage protects landlords if a fire or other covered event forces tenants to move out.

What happens when a rental property can’t be lived in due to fire, a natural disaster, or some other factor? Everybody loses: The tenant has nowhere to live, and the landlord can’t collect rent on a home that isn’t habitable. Both loss of rents (for the landlord) and loss of use (for the tenant) can be covered with the right policies.

What is Loss of Rents Insurance?

Most businesses can’t buy insurance against loss of income. If no one shops in a store or eats in a restaurant on a given day, the insurer won’t replace the lost income.

But landlords and building owners have a safety net unavailable to most other businesses. If a building is rendered partially or fully uninhabitable because of a covered event, such as a fire, an insurance company can help make them whole in two ways.

  • The insurer will pay to repair the property damage.
  • If the policy includes Loss of Rents protection, the insurer will reimburse them for the missed rents as well.

For owners of apartment and mixed-use buildings, Loss of Rents protection is an important option to consider for your building coverage. This type of coverage protects landlords against loss of income in case an insured event makes your building uninhabitable.

What is Loss of Use Insurance?

When rental property can’t be inhabited because of a covered event, tenants need to scramble to find a new, hopefully temporary, place to live. Loss of use covers the tenants’ additional living expenses in that event. (Some refer to loss of use coverage as temporary housing coverage, which makes it easier to understand.)

There will be policy limits and exceptions, so tenants can’t move from a modest studio apartment to a luxury suite at the Ritz Carlton and have insurance pay for it. Most renters insurance policies, which landlords may require tenants to have, include this coverage.

How Does Loss of Rents Insurance Protect Landlord Income?

Loss of Rents coverage is straightforward. If an insured crisis hits the building and forces tenants to move out, this type of protection will replace the monthly rent. The coverage will typically last for the duration of repairs, until the tenants move back in, or up to one year—whichever comes first.

What Loss of Rents Insurance Doesn’t Cover

Loss of Rents protection does not extend to tenants that default on their rental payments. Nor will it cover expenses, such as legal and court costs, for landlords who pursue legal action against delinquent tenants. Those situations may be covered under another type of insurance.

In addition, building owners should be careful not to take actions that nullify their coverage. In one legal case, fire damage forced three tenants to vacate the premises. Having purchased Loss of Rents protection, the owner-corporation represented to tenants they would not have to pay rent. However, the tenant leases specifically held tenants responsible for rent payments even in the case of a fire or property repairs. As a result, the insurance carrier denied the claim because the landlord had agreed to waive the rental payments.

While the fire clearly caused the property to be vacated, the court found that the loss of income came from the building owner’s decision not to collect the rental payments mandated by the leases.

Note, too, that loss of rent due to owner negligence isn’t covered. If the landlord could have prevented or mitigated the potential loss, the claim may be denied. Also, some policies will pay the landlord fair market value for the rental, not necessarily what the tenant was paying. If the tenant was paying more than what the insurer considers fair market value, the landlord or owner is out the difference.

For more information on what to look for in a landlord insurance policy, check out our article, “Do you have the right landlord insurance” and “What insurance does a landlord need?”

Landlord / Building Insurance Quote

If you would like a free insurance review or if you have any questions, call us at 877-576-5200, or request a no-obligation insurance review.

This Post Has 4 Comments

  1. Hi, Lisa. Thanks for reading and taking the time to post a question. Covid vacancies or non-payment of rent due to the pandemic do not qualify for insured occurrences.

  2. If the tenants moved out due to the needed repairs and are not moving back in should the insurance policy cover the loss of rent in the period it takes to find a new tenant after repairs have been completed?

  3. Hi, Neil. Thank you for reading and for posting your question. The answer depends on the policy wording. For loss of rents, insurance policies will typically cover up to the date that repairs are completed and the apartment is ready for a tenant–not the time it takes to find a tenant.

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