If a rental property suffers damage that makes it unliveable, the house will become unoccupied and the landlord will lose rental income until the house can be repaired and re-tenanted.
Damage caused by major events like flooding, earthquake or fire could take months to repair, meaning months of no rental income. Loss of rent insurance
is designed to put the landlord in the same position they would have been if the property was still occupied, and this is particularly important if
the landlord has mortgage payments to make.
Some insurers also offer a capped cover (e.g. 6 weeks) for tenant eviction and tenant abandonment. This cover does not require there to be any physical
damage to the property.
What to look out for
Most landlord insurers provide loss of rent insurance (that results from damage to the house) with a pay-out period of 12 months. Never assume that because
you have landlord insurance that you have loss of rents cover. Make sure that you check that:
- Loss of rent is actually activated on your policy, as many insurers offer it as optional cover.
- The value/limit of the rent cover is reflective of your actual rent. $20,000 is a standard limit of cover, and that’s about $380 p/week, so you may
need to increase the cover.
- Not all insurers offer loss of rent from abandonment and eviction.
There are many misconceptions when it comes to loss of rents. Some of the most common include landlords wrongly believing that:
- It is the landlords responsibility to find and pay for accommodation for their tenant if a house becomes unliveable because of damage (e.g. water damage).
In most cases the tenant will not be required to pay rent, and they will need to find and pay for their own accommodation. If the tenant has contents
insurance it’s likely their policy will include cover for ‘Alternative Accommodation’ to pay for the additional cost.
- That loss of rent insurance will keep paying until the house is rebuilt or repaired. Loss of rent will usually stop after 12 months or the
limit of cover is reached, whichever comes first. It’s not an open ended cover.
- Loss of rent resulting from eviction or abandonment will cover the overdue rents. Cover only applies to lost rents following the eviction
or vacation of the tenant. It’s designed to cover the period between the eviction and the new tenants moving in, essentially providing six weeks
to replace the tenants.
ABOUT THE AUTHOR
Rene is the Founder and Director of Initio Insurance.