What Does Rental Value Insurance Mean?
Rental value insurance is a type of property insurance that covers loss of rental income. This loss can be caused by damage that is an insured peril or any permanent devaluation in the rental value of the property.
The amount of payout on rental value insurance can be the subject of intense squabbling between insurers and insureds. Typically the property must be repaired or replaced with reasonable speed and similar quality. However, what is “reasonable” and what is “similar” can be a point of contention. If tenants of a property cancel their lease after a fire, and then the owner is unable to rent the property for some time after repairs are completed, the insurer will likely (and properly) not pay for loss of rent after the repairs are completed.
Insuranceopedia Explains Rental Value Insurance
As an example of rental value insurance, imagine a rental house near a small grove of especially beautiful trees, which add to the rental value. A fire damages the house and kills or severely damages all the trees. As fire is a covered peril in the insurance policy, the house is repaired at the insurer’s expense. However, the repair takes four months to complete, during which time the house cannot be rented out. Further, when the owner is able to rent it out again, due to the loss of the trees, the rent must be reduced, as prospective tenants are no longer willing to pay the previous amount. Rental value insurance would cover the loss of four months’ rent and the devaluation in rental value.
Options are available with respect to coverage amounts. The most expensive is “actual loss sustained.” Other options limit coverage to a maximum dollar amount or a maximum time amount; these two options reduce premiums.