How do I protect my rental income?

If you collect rents then you are doing it one of two ways. If you rent out a suite in your home or own a rental dwelling then you likely have personal property insurance on it. So when something does go wrong, such as a fire, you will be able to collect fair rental value for the money that you would have been paid by the rental.

Of course the insurance company needs to be informed that you are renting out a suite in your home. It could be an apartment over the garage or just a room for a boarder. If the property is empty at the time of the loss but you have evidence that you were attempting to rent it out then you will still collect up to the limit of your policy. This is great as many homeowners use rental income as part of how they make their mortgage payments.

The other form of rental income coverage comes from commercial insurance. There are two ways of doing this. You need to understand the difference between the two. Both forms are based on the monthly gross rents and you must insure to the actual amount or suffer a penalty if there is a claim payout.

Gross Earnings form is to pay for the period that it takes to replace, repair and reinstate the damaged property. You have a duty to do all things which may be reasonably practicable to minimize or check any interruption of or interference with the business or to avoid or diminish the loss. You have a total time period of 12 months. This is the Rent and Rental Value form.

The second form is like a Gross Profits form. It pays for the period to repair but gives an extension over the period after the repair until the property is rented again. This is usually a total time of 12 months but can sometimes be extended to an 18 or 24 month period.

Which form is better? Consider your situation and whether or not you need an extended period of time. Would you be able to rent the unit(s) again as soon as completed? Answering these questions will lead you to choose the form that best fits your situation.

Talk to your agent or broker about your business. You need to consider that properties can often be rented on a net basis with an additional charge for items such as heating, lighting, property tax, maintenance, security, etc. Be sure that the amount you choose to insure has taken all this into consideration.