Do you have Loss of Rents insurance on all of your rentals?

Question

Hoping to get a discussion going as to how many people pay for loss of rents insurance on your rentals. I'm looking to update my insurance policies this year and one thing I think I should be adding is loss of rents. For whatever reason, my original policies didn't include this for any of my rental properties. The cost comes out to approx. $200/month per property but seems like it's well worth the cost...

Nathan Gesner · Answer

$200 a month per property for rent loss coverage? That seems way too expensive.

Check out Surevestor. It is landlord insurance backed by Lloyd's of London. I believe it cost $400 a year and will cover tenant damages, lost rent, and a lot of other things that concern investors, especially investors of higher-end properties.

Cameron Tope · Answer

@Cliff T. it's all about risk tolerance. If you're like @Lee Ripma then you save money on your premiums but if you're more risk averse then you get the coverage.

I have found it relatively cheap to have loss of rents so I include it on every property. I don't want to be out of rent and having to pay the bank, taxes, etc. and maybe even payoff a disgruntled tenant.

One way I have found to get cheaper rates is raise my deductible, especially if you have a solid financial position with several properties. Again, all depends on what allows you to sleep well at night.

Also, I would get loss of rents if you have less than 3 properties because if one property is lost (fire, flood, etc.) then that's 33% of your cash flow. If you have 10 properties then 1 loss is only 10% of your cash flow.

Best of luck!

Account Closed · Answer

@Cliff T.

Is that $200/ month for a 35 unit bld or for a sfh? I have it on everything to a total of $25,000 OR until the property is rebuilt. I pay roughly $2500 annually for my compete insurance on a property. With 3 income streams per house (up/down/garage) most bring in right around $36,000 annually in rent so I would likely have to press to get additional funds as rebuilding in 8 months would be fairly tight (especially this time of year).

Steven Taylor · Answer

@Cliff T.

I like to get enough insurance that if it burns down I get all my money back and I can fill the whole in the ground with dirt. I also like high deductibles to keep the prices down. Most of mine are at 10k deductible

Dan H. · Answer

I have lost rent coverage and it is less than $200/year per unit for our units with our insurance carrier. Our most expensive insurance is <$700/unit for the full coverage.  $200/month I knew was wrong but $200/year still seems high.  Are these multi-unit properties?  In a high risk area?

Prior to this past year, our rent insurance was used once on two units with rents ~$1500/unit.  Over all of our units, we had paid more than $3K for lost rent insurance so we were behind (we would have been better served to have not had lost rent coverage).

A few months ago, we had a fire take out 2 units. The original time estimate was 4 to 6 months but is now 6 to 8 months.  These two units had rent of ~$2K/unit.   8*2*$2000= $32,000 in lost rent.  Needless to say I am very glad we have lost rent protection.  We are definitely ahead having the insurance.  We already received a check for over $18K for loss rents.  We will be receiving another check to cover the actual lost rents.

It is a gamble to not have it.  It could work out not to have it, but I am very glad we had it.

Good luck

Cliff T. · Answer

Yes! $200 annually per property.... thanks for the responses all!

Anthony Wick · Answer

@Cliff T.

I do, but I sure don’t pay that. I’m guessing you meant $200 a year per property?

Erik W. · Answer

$200 / month seems way too high, but you didn't tell us how much your rent is.  If it's $15,000 / month and you're in an area that is prone to losses that would cause you to receive no rent, then may be.

Insurance is a calculation of cost vs. risk.  What is the anticipated loss vs. the anticipated benefit?

To answer your original question, yes, I carry loss of rents, but it only adds about $30 per YEAR to my policy.  Most of my rents are $550 - $650 / month, though.

Here's how I do the calculation.  Let's pretend I have a fire in a house that takes 2.5 months to clean out and repair.  Meanwhile, my tenant has most likely moved on elsewhere, so I must also find a new tenant.  Add a month to fill the vacancy.  Total lost rent is 3.5 months on a $600 rental, or a total loss of $2,100.

At $30/year, I could pay on that part of my policy for 70 years before breaking even.  So basically, it makes sense to buy it.

Lee Ripma · Answer

@Cliff T.

I don’t have loss of rents. I’m a bit anti insurance. Don’t get me wrong, I carry insurance but only for losses I could not weather. For example, the complete destruction of the asset. My reasoning is that a complete loss is a very unlikely scenario while the premium payment is certainly. The loss of rents is unlikely and if it does happen it’s something I could handle. I only want to make insurance claims on very large events. Also if you ever make an insurance claim that will follow you around and raise your premiums, which again are very certain to be paid. I had a tree fall on my property during a storm, I made a claim to the tune of 10k and boy does that follow me around. Anyway, I don’t have it. I set my coverage at actual cash value minus the land. If the property burns down I’ll pay off the bank, sell the land, and walk away. If it never burns down (far more likely) I’ll save on my premiums.