Fair Rental Value Coverage Details

Nowadays, there are many considerations when it comes to insuring a rental property. You can consider a dwelling fire insurance policy; you can insure your property for replacement cost or the actual cash value. You must also consider how you would maintain a good profit margin should your property becomes unlivable due to a covered cause of loss. Most of the insurers will offer “Fair Rental Value” as an option to add to your dwelling policy coverage.

Under the Fair Rental Value coverage, your insurer will endorse your policy to include monetary payments of the amount of your current rental value if your property is temporarily unlivable. What will happen if your property suffers fire damage and your tenants have to seek alternative living quarters during repairs? That means you will have no rental income for this period. It is where your insurance company will come in; they will not allow the scheduled payments for your mortgage and other expenses to suffer. The insurance company will pay you the amount agreed to in the policy for the period your property is not fit for occupancy.

Fair Rental Value coverage does not cover damage to your property. But most landlord insurance policies have “dwelling coverage” which helps to cover damage to property caused by perils such as fire, lightning, and wind. The insurance company will help pay to repair or replace the property up to the limits stated in their policy if damaged by a covered loss. Therefore, you as a landlord should endeavor to check your landlord insurance policy to determine if you have “fair rental value coverage” and what types of situations it covers.

Example of Fair Rental Value Coverage

Let’s assume you have a $700 mortgage payment on your rental property, and you charge $1,000 per month in rent to cover up for your tax and insurance expenses and make a small profit on it. If your property suffers damage under one of the situations, the policy covers, and your property becomes unlivable. You have to file a claim, and the insurance company will come and inspect and ascertain the level of damage. If you have a genuine claim, then the insurance company will have to pay you $1,000 per month for the period of repair.

Some insurance companies have a specified period for payment, but the minimum period is four months. Generally, depending on the insurance company, the payment period may be specified as four months or six months or at most one year. But you must know that the longer the payment period, the higher the premium you will pay the insurance company.

Types of Fair Rental Value Coverage

Three major types of Fair Rental Value Coverage serve as options in the policy.

Percentage Coverage

Most of the standard insurance companies will offer this as standard coverage on their policy; They include it in their premium pricing without asking. They normally have 20% of coverage in their policy. For example, if your rental property is insured for $100,000, it means that you would be covered for $20,000 (20% x $100,000 = $20,000). It is also possible to purchase additional coverage from some insurers in percentage increments up to 30%, 40%, or even 50%.

Actual Loss Sustained

The policy's premium is costly, but you can rest assured that no money is coming out of your pocket to pay for any future incurred expenses due to damages on your property. This policy agrees to pay more than the specified amount of money in the event of a covered loss. For example, if the policy's amount is $10,000 and the actual loss sustained is $20,000. The insurance company will have to pay you $20,000.

Maximum Time Amount

In this type of policy, the insurance company will pay a specified amount of money per month for a set amount of months. For example, if you declare a monthly rental value of $750 per month, and the policy payment period is four months, the insurance company will pay you $750 per month for only four (4) months.

Like every other type of insurance, fair rental value coverage is like an extra charge from the insurance company. Although many people consider insurance as a waste of money until they suffer a loss and then they will realize it’s the greatest concept ever imagined.