Perhaps you've decided to rent out a newly refurbished room in your abode. While you're typically protected by your homeowners policy in the event that your house is completely leveled by a covered incident, the question remains — would you be financially protected against any lost payments if the rental space were rendered uninhabitable?
what is fair rental income protection?
If you rent out an area of your home and it's suddenly uninhabitable due to covered damage, the option of fair rental income protection on your home insurance policy may help to recover that lost revenue for up to 24 months, depending on the state in which you live.
Additional living expense (ALE) coverage may help pay for temporary living conditions such as rent, food, furniture, and storage space if your home is devastated by a covered risk. The rent money that you used to receive, however, is usually not one of them.
Fair rental income protection is essentially an offshoot of ALE and offers an additional way to help maintain your normal living standards while your home is being repaired or rebuilt after a covered event (i.e. a fire, wind damage, hail, burst pipe; etc.).
Also, it's important to note that fair rental income protection likely won't apply if the lease has been canceled or if the tenant has been negligent with monthly payments.
the benefits of fair rental income protection
Let's say you have a tenant who pays $800 a month for a room in your house. A brutal hailstorm devastates the roof and your tenant is forced to find alternate housing for a few months while the repairs are being made. And to make matters worse, now you're missing out on rent revenue — a significant loss of income.
Since your mortgage lender and the IRS won't likely allow you take furlough from financial obligations, rent loss insurance may help reimburse the costs at the market value of your property, — in this case, around $800 a month.
That means with regular homeowners insurance, you typically don't need to opt for an additional landlord insurance policy since you'll already be adequately covered. So if your home (or a part of your home) suffers a loss, the income you'd received from your tenant's rent would be taken care of while your home undergoes the necessary repairs.
how to determine the fair rental value
The best way to gauge the fair rental value of your property is by researching the rent values in your area. And a great way to commence your research is to navigate the Department of Housing and Urban Development (HUD) website. Every year, they publish fair market rent values for each state, which can be narrowed down to counties.
You may also want to browse the newspaper, real estate ads, or online classified listings — you may be more likely to find spaces or rooms that are similar to the one you intend to rent out.
By finding comparable properties, you can begin to formulate a base rent for yours and make adjustments as needed. Comparable properties should have a similar number of bedrooms and bathrooms, and be in close proximity to your home.
get fair rental income protection for your homeowners insurance
Whether part of your home incurs minor damage from a break-in or is completely reduced to rubble after a major windstorm or fire, fair rental value protection can offer additional peace of mind and help make life's more hectic moments a little easier.
If you're thinking about renting out a room in your house or already have a tenant living in a fully decked-out basement, we're here to answer your questions at 1-800-ESURANCE (1-800 378-7262). Our licensed agents are available to help at these times.
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