Discover why investment property owners should consider business income insurance.

Learn a few basics about the purpose and benefits of business income insurance.

Planned walk-throughs are one way investment property owners address general upkeep and preventive maintenance. An additional proactive exercise is mentally walking through “what if” scenarios. Thinking about more than what you actually see provides a better picture of what needs to be protected under your financial roof. Beyond property and liability insurance for your investment property, business income insurance should be thoughtfully considered.

What if a fire broke out in one of your investment property rental units? What if it damaged just one rental unit? What if it damaged several rental units? What if it damaged the entire investment property? These are “what if” scenarios you should carefully consider, because each one would likely cause your investment property to become either partially or wholly uninhabitable. Not all property insurance policies cover loss of rental income.

Next, pose some very practical questions that require you to mentally walk through the impact loss of investment property rental income due to a fire might have to your financial roof. Two suggested questions to start with follow. Can you afford to make mortgage payments on the investment property without rental income? Do you depend on consistent rental income from your investment property to help pay for your kids’ college tuitions, or to fund your retirement, or to assist an elderly parent with caregiving costs?

Business income insurance is an effective solution to protect the proverbial financial roof of many investment property owners. While actual policy terms, conditions, and limits always apply, the following five points are intended to introduce some of the basics of business income insurance:

1. It is not automatic or free; it is a specific coverage added on to your property insurance policy to help cover loss of rental income before a covered cause of loss occurs. It is subject to an additional premium charge.

2. A defined covered cause of loss, such as a fire, pipe burst, or wind damage, must first occur that causes the investment property (or units of) to become temporarily uninhabitable.  It does not cover any rental income loss due to transitioning from one tenant to another, or due to a tenant breaking a lease or vacating a habitable unit/house.

3. You decide at the time of purchase (not at the time of loss or thereafter) the maximum limit you want to apply to loss of rental income. Rental income must be documented. Only the rental income that is lost during the time necessary to restore or repair the damaged investment property or portion thereof to habitable condition would be paid by the insurance company, subject to the maximum limit for loss of rental income.

4. You decide how long coverage will compensate you for loss of rental income at the time of purchase (not at the time of loss or thereafter). The maximum length of coverage available is usually 12 months. Shorter lengths of coverage options may be 3 months or 6 months.

5. There is no dollar deductible, but some insurance companies require a waiting period of up to 72 hours after the covered cause of loss before business income coverage begins.

Richey-Barrett Insurance is your Trusted Choice Independent Insurance Agent for all of your investment property insurance needs. Call us today to walk through your business income insurance questions or to discuss any of your insurance concerns.