Insurance Question

[greeninv.]

I am getting ready to close on my first investment property.  I intend to hold this property as a rental.  I spoke with my mortgage broker today and he said since this is my first investment property the underwriter may require me to obtain "rental insurance" that would pay the mortgage payment if the property was to be vacant for a period of time.  Has anybody ever heard of this type of insurance?  Any ideas about what the premium may run on such a policy?  Also, does any body know what factors the underwriter might consider in determining whether this type of coverage is required?  There is currently a tenant in the property and the lease is up in November.  Any information you could provide would be helpful and certainly appreciated.  Thanks.

[WilsonTaylor]

Hi Greeninv.

I am not one of the more seasoned veterans around here. but I do have a few houses in my portfolio.  To answer your question, I personally have not heard of this type of insurance, but I have heard of insurance to cover your payment if you become disabled or lose your job.  None of the mortgages that I now have have required "Rental Insurance", but it seems that mortgage companies are always trying to come up with a new angle to squeeze a buck out of the borrower since the competition is so stiff on the rates.

Sorry I could not be of more help, but this is a new one on me.

Wilson

[Dave T]

greeninv,

Your mortgage broker may have been referring to a standard landlord policy with a rental loss rider.  The landlord policy provides the hazard insurance the lender will require, and the rental loss rider will cover your lost rents should the property become unusable due to a covered hazard.

For example, a kitchen fire requires extensive repairs and renovation covered by your insurance policy (subject to your deductible) but your property will be vacant for two months while the repairs are performed and you are then able to obtain a new renter.  Your rental loss rider will insure that your rental income continues during this vacancy incident to a covered hazard.

I heard that Ginnie Mae and Freddie Mac have been requiring "rental loss" insurance for a couple of years for investor loans when the investor has some number of properties in his portfolio (maybe ten or more).  

Does this make sense?

[greeninv.]

Yes, perfect sense.  Thanks for the replies.  I'm going to talk to my insurance guy today to see if he even knows what this is.  What you're saying sounds right, but that is not what the mortgage broker said.  The guy either doesn't know what he is talking about or he is just a lousy communicator.  It didn't make sense to me you could insure against a vacancy, but what do I know.  Thanks again for the great replies.

[Dave T]

Most of my landlord policies have rent loss coverage with a limit of $2000.  In my case, that is about 2.5 months rent for most of my properties.

[Dave T]

It didn't make sense to me you could insure against a vacancy, but what do I know.  Thanks again for the great replies.

greeninv,

I reread this thread, and I think you misinterpreted what I am telling you.

A rental loss rider does not insure against a vacancy.  If you have a month or two of vacancy because of a soft rental market, you have to bear it.  It is not a covered loss.

A rental loss rider reimburses you for the rent loss you suffer when your unit is uninhabitable or vacant as a result of a covered hazard.   For example, a hurricane takes the roof off one of your properties.  The water damage and missing roof make the property uninhabitable until all the repairs are complete.  Your rental loss rider will reimburse you for the rent you lost because of the hurricane damage.

[Hal Roark]

Dave has given you an excellent response.

This type of "insurance" (rider) is becoming more popular, and it's cheap.  Look into it.  A good insurance broker is aware of these programs.

Hal