Hey property investor, have you thought about what happens when disaster strikes your property, how do you keep from a loss of rent?
If your tenants are unable to occupy your building, your rent will stop unless you protect your rent. Where will you get the money you need to pay your mortgage, pay your employees, and ongoing expenses? What about your profit?
You would be shocked to know how many landlords do not buy Loss of Rent protection, especially on C & D class assets.
If income matters, you want to insure your rents from loss in the event of a “covered loss” to your building.
Insurance is complicated, so please understand this:
1 – The Property Coverage Form, has multiple lines of coverage. If there is not a number on your declaration page next to the coverage description, with rare exception, you do not have coverage!
2 – A property insurance policy with “special form” protects your Building from all perils EXCEPT those that are excluded, such as; “Earth Movement” & “Flood”.
What do you need to protect yourself from Loss of Rent?
A – The coverage you need to insure your rents can be called a couple of things:
- Business Income
- Business Interruption
- Loss of Rents
- Rental Value
What is covered?
B – The property policy provides protection from loss caused by a covered peril including:
- Net Operating Income before income taxes
- Ongoing Ordinary Expenses including Payroll
How much do you need?
C – There are multiple coverage limitation options available. You need to consider the time needed as well as the amount. If your market is experiencing significant rent increase, or a local building boom, and the damage is extensive, you may need substantially more than you expected to get back up and running.
Actual Loss Sustained is the most preferred option if your insurance company provides it. The simple reason this is preferred is because there is no dollar limit.
However, the standard length of time for Actual Loss Sustained is twelve months. This is great in a partial loss and normal building market. If you need more time, you could be screwed. Unless you are able to extend the time limit.
There are insurance companies that provide coverage time limitations of 18, 24 and even 36 months of coverage. You will need to check with your company or agent to determine the maximum amount of time available.
Other versions of coverage require that you preset a specific dollar limit. These options include additional terms you need to understand:
- Coinsurance: a percentage requirement that your needed limit be within the coinsurance proportion to the total limit possible.
- Monthly limitation: expressed as a fraction, ⅓, ¼, or 1/6 to the limit on the policy declaration
For your FREE worksheet to determine the amount of rent you need, CLICK HERE
For more information, or answers, please contact: