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Why Do I Need Loss of Rents Coverage?

Some things go better together.

Coffee and donuts. Beer and brats. Wine and cheese. Whatever your preference, some pairings just make sense. And then, there are those pairings which are inseparable and perfect for Texans.

For those of us in Texas, chips and salsa, anyone?

Investing in properties is two-fold. What's better than purchasing that rental property? Having rental income pouring in, that's what. That's the whole reason you put your John Hancock on the deed and moved forward. Visions of the perfect tenant or tenants keeping your property occupied for a lengthy period of years and what you might do with the extra income danced in your head. You purchased the appropriate dwelling coverage to protect against many named perils (or all losses depending on your policy) like windstorms, fire, and North Texas hail and feel secure any qualified claim for covered repairs you make (if you should need to make one) will be met with open arms and open checkbook of your insurance carrier. After all, insurance is about restoring what's yours when disaster strikes, right?

But, what about leaving that rent unprotected? Sometimes a property will suffer enough damage, e.g., fire or flood, to make their property uninhabitable. If your tenant can't live at the property, they are not bound to pay the rent at the property, potentially leaving you with the double-whammy of repairs to be made and a loss of rental income, often for an undetermined amount of time. With some areas being severely devastated with many homes impacted, sometimes it takes a lot longer to rebuild or repair a home, leading to a potentially longer period of rental income loss.

A Perfect Pairing

Insurance can save the day on both counts. While your landlord insurance, i.e., dwelling policy coverage on the property covers the repairs or rebuild, Loss of Rents insurance helps property investors when their properties become uninhabitable for a period of time due to loss. This provision will put rent money back in an investor's pocket that they would have earned with a tenant paying if the damage to the property didn't take place.

During a stressful time of rebuilding or repairing, it will help bring peace of mind to know the rental payment you've come to rely on from your tenant in order for you to make the mortgage payment you're liable for on the rental property will continue to be made.

If you have a covered claim on your property and you've paired it with an additional loss of rents policy, you will receive rental income reimbursements from the insurance carrier, however, don't be surprised if you see the amount you charge your tenant not reflected in the reimbursement amount.

What Does it Not Cover?

The insurance carrier will reimburse the fair market value of the rent. If you charge your tenant $1000, with a portion of that $1000, say $200 going toward your payment of the cost of utilities, your insurance carrier will not reimburse the $200 if there aren't any utilities being used at the property. The $200 is considered an avoidable expense due to the claim conditions and you would most likely receive a check for $800 if other avoidable expenses aren't factored in. Also, your insurance carrier is most likely not going to cover a claim due to the negligence of the property owner. If your actions directly led to the damage resulting in the claim, your loss of rents insurance policy will not reimburse. Also, floods and earthquakes are not usually covered in the case of loss of rents and require their own policies.

Let's Pair Up

As an independent insurance broker, Insurance For Texans can pair you with carriers who deal extensively with property investor insurance solutions. If you have a property investment portfolio or are looking to start one, let's talk. If you're in the neighborhood, we're open to getting some chips and salsa.

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