Is it worth it to file a loss of rental income claim?

Question

My wife and I own a multifamily and submitted a claim to our insurance company (Vermont Mutual) for a roof leak in May of last year. We've experienced frustrating delays throughout this entire process, and while we've now had the roof repaired, we still have yet to complete the ceiling repairs needed to rent one of our units.

The unit was renting for about $2,000 a month, and it's now been nearly 12 months since our previous tenants moved out. They actually had wanted to renew their lease, but we chose not renew so that we could have the space vacated to complete these repairs (which at the time we thought would take a few weeks; not a year).

My question is: is it worth it to file a loss of rental income claim for this? We've heard that insurance companies can jack their premiums up if you have too many claims, and we're unsure whether any payout for loss of rental income will be worth it. If we do submit the claim, what kind of payout do you think we could expect?

We have discussed it with our adjuster and they indicated a willingness to consider it, but were not able to give us a sense of whether and how much our premium would change as a result.

Thanks in advance for any advice you're able to give!

Joe Splitrock · Answer

In my experience, a claim is a claim. You should either claim nothing or have them cover everything. I have only had one claim on a rental property for a fire and they did not raise my premium. My understanding is non-fault situations don't jack your insurance for a property, but if the area is hit with abnormal claims, they may raise the entire area. In other words if every house gets hail damage, even though you don't file a claim, your rate may go up with your neighbors. This is just coffee conversation from my agent and I am sure every company has a different policy. Talk to your agent. Usually they will give an "off the record" opinion on what is best for you.

Timothy W. · Answer

If the insurance company already covered the claim for physical damage to the property the lost rent is not another claim. It is loss of rents coverage for this claim. Might be under Coverage D depending on your policy. The effect on premium is reliant on underwriting. No one can give a definitive answer on that who isn't the underwriter on the renewal.

Matthew Olszak · Answer

If the roof damage was covered, and the lack of rental income was due to the repairs being made and/or the leak itself, the loss of rental income will pay out under the same claim. However unless this was a major loss, there is no reason it should have taken a year to make the repairs, so I expect you'll get major push-back from your insurer (unless they were the reason for the delay) as far how much they'll pay. I'd expect them to maybe reimburse you 2 months rent or so based on the info you've provided.Also, in what state is the property located?

Kyle Nacci · Answer

@David Browne @Robert Kincaid @Brian Hoy Thanks for your responses. Sounds like the consensus is that it will not have a substantial impact on our premium as long as it's part of the same claim, but we should expect them to cover anywhere near a year of lost rent. Appreciate your guidance!

David Browne · Answer

@Kyle NacciIf the loss of rental income is associated with claim on the roof leak and ceiling repair, you may be able to do a supplemental on the original claim avoiding the need to file an additional claim. Be persistent, it will pay off.

Robert Kincaid · Answer

@Kyle NacciI will give my insight on this one. I am a property claims adjuster for an insurance company. Every carrier is different and less can vary significantly by state but this is how I would look at it were it a claim I was handling.You can submit the claim for loss of rent. It will fall under the same loss as the roof claim. As far as insurance premium increases, expect no change in premium from the addition to your claim. You already have the claim. Doesn’t matter if it is $1,000 or $100,000. Think of insurance like financing anyways. The base rate you pay for premiums is paying towards a worst case scenario - total burn, etc. If your house burned down I would hope you wouldn’t ask about a rate increase. Smaller claims are generally rated for over a 5-7 year period, much like a speeding ticket. Assume your rate doubles, is your claim more than that increase over 5 years? Do you have the cash reserves to cover it outside of insurance if you don’t want to file a claim? As far as the loss of rent goes I would consider maybe a month. Barring something catastrophic it is highly unlikely that the home would be uninhabitable from this claim. The ceiling damages to the inside likely could have been repaired within a month timeframe. There could be other circumstances that would leave open for consideration an extended amount for loss of rent but it needs to be reasonable. A year for getting the ceiling repaired seems pretty far out on the long side. Typically a top to bottom rebuild can happen in that time. I hope this helps!

Brian Hoy · Answer

@Kyle NacciI work as an agent for the biggest insurer. Most companies in the industry look at your claim history over total dollar amount of a claim. That being said, include your rental losses on your already filed claim. If your insurance company is going to charge a surcharge for the claim they will most likely do it anyway regardless of the loss of rents. Additionally, like someone else mentioned that potential surcharge or cost of insurance increase would be a minute fraction of the $24k.

Kyle Nacci · Answer

@Joe Splitrock Thanks for the response, appreciate you sharing your perspective!

Kyle Nacci · Answer

@Tim W. Ah ok, thanks for clarifying

Timothy W. · Answer

Unfortunately it's more like I'm telling you that you won't know the impact until renewal. Underwriters will only make a determination at that point, however you have already filed a claim. That is the greatest impact on premium. A supplement to that claim won't matter as much. Still, will the renewal premium increase be the $24,000 in rental income you lost? If it is, it's time to shop the policy to competitors.