Rental Value Insurance
What Does Rental Value Insurance Mean?
Rental value insurance is a type of property insurance that covers the loss of rental income due to damage caused by an insured peril or a permanent decline in the rental value of the property.
The payout amount for rental value insurance can often lead to disputes between insurers and insureds. Typically, the property must be repaired or replaced with reasonable speed and to a similar quality. However, the definitions of “reasonable” and “similar” can be contentious. For example, if tenants cancel their lease following a fire and the owner cannot rent the property for some time after repairs are completed, the insurer will generally and justifiably not cover the loss of rent after the repairs are finished.
Insuranceopedia Explains Rental Value Insurance
As an example of rental value insurance, consider a rental house situated near a small grove of especially beautiful trees that enhance its rental value. A fire damages both the house and severely harms or destroys the trees. Since fire is a covered peril under the insurance policy, the insurer pays for the house repairs. However, the repairs take four months, during which time the house cannot be rented out. Additionally, when the house is ready for rent again, the absence of the trees leads to a reduction in rent, as prospective tenants are unwilling to pay the previous rate. Rental value insurance would cover both the loss of four months’ rent and the devaluation in rental value.
Various coverage options are available, with the most expensive being “actual loss sustained.” Other options limit coverage either by a maximum dollar amount or a maximum time period, which helps reduce premiums.
