What is Loss of Rental Income Insurance?

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What exactly is loss of rental income insurance—and does a landlord need it? Below we define this optional add-on to landlord insurance to help you decide if you want to pay for it or not.

What is Loss of Rental Income Insurance?

Loss of income insurance covers loss of rental income if damage (e.g., fire, flood) renders your property uninhabitable.

Loss of rental income insurance essentially covers lost monthly rent payments if your property is damaged and you're unable to rent it out as a result. For example, if the ground floor of your buy-to-let house is flooded in a storm or a fire leaves the property uninhabitable for months until repairs can be made.

In those situations, your building insurance would cover the cost to repair the damage—but who makes up for the lost rental income while repairs are being made? That's where loss of rental income insurance comes in.

What's covered?

Loss of rental income insurance basically covers the rental payments you miss out on while your property is uninhabitable due to physical damage like fire, theft/attempted theft, flood, explosion, vandalism, etc.

A good policy will also cover the cost of re letting the property and certain legal fees. And you might even get cover for lost rental income if your managing agent's premises are damaged (e.g., preventing them from finding you a tenant); if a damage to a nearby property restricts access to your property; or if there's a failure of public supply (e.g., water, sewage, telecoms, gas & electric, etc.).

  • Lost rental income if your property is uninhabitable or unaccessible due to physical damage like fire, theft/attempted theft, flood, explosion, vandalism, etc.
  • Fees for re letting the property
  • Associated legal fees

Do I Need Loss of Rental Income Insurance?

Loss of rent insurance isn't required by law. But if you'd struggle financially if your buy-to-let or other rental property was sitting vacant for months on end, then this add-on coverage could be an important part of your total landlord insurance package.

Also take into account whether or not your landlord building insurance includes "alternative accommodation cover". If you do, then loss of income cover may be less critical because existing tenants could theoretically keep paying rent while they've been relocated to another property (courtesy of your insurer via alternative accommodation cover). That said, keep in mind that if a tenant decides to move out at some point then you won't be able to re let your property whilst it is under repair.

Here's an example: Imagine the scenario where your tenant has two months to go on their lease when your buy-to-let property is damaged by fire, rendering the property uninhabitable for six months. Alternative accommodation should cover housing for your tenant for the last two months of their lease (so you still receive rental payments during this time). But then what happens at the end of the tenants lease? They move elsewhere and you're out rental payments for four months until the property becomes habitable again. Loss of rent insurance would cover lost rental income during this period.

What to look out for

Before buying loss of rent cover, check:
  • Duration of cover (e.g., 6 or 12 months)
  • Cover limits (e.g., £2,500 a month)

There are usually limitation on a loss of rental income insurance policy. For starters, there will be a limit on the monthly payout. This should be tied to the amount you charge in rent. There will also be a limit on the amount of time the policy will pay out for, such as six or 12 months.

What's not covered?

Loss of income cover won't protect against every risk. Here are a list of common exclusions:

  • Vermin: Damage by rats, mice, squirrels, owls, pigeons, foxes, bees, wasps or hornets
  • Occupancy: If your property is unoccupied for an extended period of time (e.g., 30 or 45 days)
  • Property for sale: If your property is awaiting sale there may be further limitations on payouts
  • Public services: If public services are intentionally shut off to your property (e.g., due to nonpayment of bills)

Loss of rental income insurance is different from rent guarantee insurance. Read about how these similar-yet-different landlord insurance add-ons differ here.