What is fair rental value coverage?
Fair rental value coverage protects the investment part of your investment property. As a landlord, you likely rely on your rental revenue for income. But if a fire destroys your property, your tenant won’t be able to live at your property – and you won’t be able to collect rent. Even during a claim, your bills, like your mortgage, property taxes, etc., still need to be paid.
That’s where fair rental value coverage can help. This part of your landlord insurance can replace rent checks you would have received during a covered claim. That way you can still cover your bills and protect your income.
For example, say your property catches fire and it will take three months to repair the building and remedy the smoke damage. If your property typically rents for $2,000 a month, you could make a claim to cover the $6,000 in lost rent.
Fair rental value payments are available for up to 12 months or the time to repair or replace the property – whichever is shortest.
As for your tenants who are out of a home while repairs are underway? Their renters insurance (HO4 policy) can cover their temporary lodging.
Fair rental value coverage is similar to loss of use coverage in a standard homeowners or renters policy. Loss of use helps cover additional costs, like lodging and transportation expenses, while living away from home during a covered claim.
What fair rental income protection doesn’t cover
Fair rental income protection does not cover every loss of rent situation. It only kicks in when your property is uninhabitable because of a covered claim. If the incident isn’t covered by your policy, the vacancy it causes won’t be covered either.
For example, fair rental value coverage won’t help you out when a tenant breaks a lease or if you’re unable to find a tenant for the property.
It also doesn’t cover temporary relocation or lodging expenses for your tenants. That’s a job for their renters insurance.
Is fair rental value coverage included in landlord insurance?
Fair rental value is automatically included in our landlord policies. If you work with a company other than Kin, that may not be the case. Be sure to ask about it and read over your policy carefully to make sure you’re fully protected.
Does fair rental value coverage pay for damage to your property?
Fair rental value coverage is one part of your landlord insurance policy – Coverage D. It’s not the part that covers damage to your property. Dwelling coverage (Coverage A) pays for damages to the structure of your property, like water damage from leaking pipes. Fair rental value coverage kicks in when Coverage A does, so long as the claim makes the home uninhabitable. They work together in most cases.
That said, you could have a Coverage A claim that doesn’t make the home uninhabitable and wouldn’t trigger fair rental value coverage.
How is fair rental value determined?
When you do need to draw on your fair rental value coverage, your insurer will usually determine your payout based on the rental income immediately prior to the loss. It could also mean that your insurer calculates the fair market rental rate for your property by looking at similar properties in the area and seeing how much they rent for.
You should also be familiar with how your fair rental value limits are defined in your policy:
- Percentage Coverage: This means your fair rental value coverage is a percentage of your dwelling coverage (e.g., 20%). So if you have $200,000 in Coverage A, you’d have $40,000 in rental protection. Our fair rental value limits are set at 10% of Coverage A, but you can increase it to 20% or 30%.
- Maximum Time Amount: Fair rental value coverage does have a cap. It’s paid based on how long it takes to make the necessary repairs up to 12 months. Any lost income past that 12 months is your responsibility.
If you’re a landlord, check out your policy’s rental income protection. If you have questions about this coverage, feel free to give us a call!
