Landlord insurance with rent protection
As it relates to landlord insurance, I've heard there are policies that can include "rent protection" to cover the property owner. Not only covering the rental income in cases where the dwelling is uninhabitable but more so if the tenant defaults and stops paying rent and has to be evicted. Is this a real thing or just an urban legend? Many of the major insurance carriers that I've called say they have never heard of such a policy.
#2 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Usually insurance companies only cover loss if the property is uninhabitable. There are companies that specifically offer tenant doesn’t pay rent “insurance”. It’s often sold as an alternative to larger security deposits or co-signers for people with bad credit bad rental history. I guess I wouldn’t be against it if it was cheap (less than 1-2% of rent) and the tenant paid it. Any higher than 2% and you’re saying you assume there’s a 24% chance they will bail within a year. Move on to a different tenant.
I would never pay for either one myself. Even with a dozen Properties spread over 25 years I have yet to have a property become uninhabitable. I might have had 2 months of lost rent. But when you do the math of 12 properties times 12 months times 25 years times you’re talking 2 out of 3600 months. 0.0555%. So even 1/10th of a percent would have been too much.
It’s like the home warranty scam. They expect to make money on it, so if you shouldn’t buy it. You should buy insurance to protect against disastrous losses, not every day ones.
#1 Insurance Contributor
- Insurance Agent
- Norwalk, CT
Mike,
Under most Insurance policies for rented dwelling, apartment buildings, etc. that include Business Income or Loss of Rents coverage, it requires a covered loss. If there was a Fire, Windstorm, Etc. that is covered by the policy and it results in a loss of Rental income, that coverage would be triggered. I have not heard of a Personal or Business policy that covers loss of rent due to a tenant chosing not to pay. I have read about stand alone policies that promise to pay if the tenant defaults on rental payments but I have not ever written that type of coverage.
Mike,
I agree with John. I've only seen loss of rental income pay out after a covered cause of loss (fire, water damage, sewer backup, etc.) triggered a loss in rental income for the investor.
As you could imagine, landlords would be filing claims frequently and all over the country if this type of coverage was a real thing (especially when times are tough, or during a period of inflation). I wouldn't be surprised if just about every investor on BP doesn't have someone who's not paying their rent or hasn't for the past 30-60+ days.
Unfortunately, I'm pretty sure this is an urban legend. However, if some carrier is providing this type of coverage, then they better have very strict limitations on the coverage so claims don't get out of hand, or they probably won't be in business very long.
Good morning,
Bill, John and Bo. Thank you all so much for the knowledge and advice. It is much appreciated.
This is 100% an urban legend!
Quote from @Mike Parker:
Good morning,
Bill, John and Bo. Thank you all so much for the knowledge and advice. It is much appreciated.
co-sign what @BiggerPockets Investor Concierge and
If you finance a property as an investment, the lender will insist on that type of coverage to close. If you convert a primary to a rental, then make sure you have that coverage. In my experience, it's always been a coverage that came standard with the landlord policy.
Quote from @Rodney Sums:
Quote from @Mike Parker:
Good morning,
Bill, John and Bo. Thank you all so much for the knowledge and advice. It is much appreciated.
co-sign what @BiggerPockets Investor Concierge and
If you finance a property as an investment, the lender will insist on that type of coverage to close. If you convert a primary to a rental, then make sure you have that coverage. In my experience, it's always been a coverage that came standard with the landlord policy.
Yes, if you do end up converting a primary home to a rental property the insurance carrier must be notified of the change as it's a completely different policy with different coverages.
It's not a difficult change to do but if you don't make the change and a loss was to happen a claim could be denied.
Quote from @Rodney Sums:
Quote from @Mike Parker:
Good morning,
Bill, John and Bo. Thank you all so much for the knowledge and advice. It is much appreciated.
co-sign what @BiggerPockets Investor Concierge and
If you finance a property as an investment, the lender will insist on that type of coverage to close. If you convert a primary to a rental, then make sure you have that coverage. In my experience, it's always been a coverage that came standard with the landlord policy.
Thank you sir.
Yes, there’s a product that exists which does exactly what you want. As a matter of fact it works better than insurance. It’s a bond! To be exact a performance or surety bond. The bond secures the performance of the contract or the lease in a landlord’s case. It’s a 1 time fee to obtain the bond which would cover the lease. Up to 24 months I believe. There’s at least two companies I know of that provide lease surety bonds specifically for landlords. I’m not talking theory because I’ve personally used it.
Thanks for the information Omar, By chance would you be able to provide the name(s) of those companies that offer the bonds please?