What loss of rent insurance covers and does NOT cover
Covered insured events: fire; flood; storm damage; escape of water (burst pipe; leaking boiler, most common claim type); subsidence; malicious damage. NOT covered: tenant default (rent guarantee insurance); void periods between tenancies; market rent reduction; landlord's own choice to take the property off the market. Loss of rent insurance is almost always included as a standard section in a comprehensive landlord buildings insurance policy, typically NOT available as a standalone policy separate from buildings insurance.
Sum insured, underinsurance and the average principle
The sum insured must be set at the GROSS annual rental income, the total rent receivable before any deductions. If the actual annual rent exceeds the sum insured, the loss of rent claim is proportionately reduced under the 'average' principle. For a property generating £15,000 per year insured at only £10,000, any claim is paid at 10,000/15,000 = 66.7% of the loss. Landlords should review the sum insured annually when the rent increases.
Excess period and maximum policy period
Excess period: typically 30-90 days from the date of the insured event before cover begins to pay. The landlord must absorb the income loss during this period. Maximum policy period: cover pays from the end of the excess period until the property is reinstated and fit for occupation, or until the policy maximum period (typically 24-36 months), whichever is sooner. Zero-excess policies are available but less common.
Escape of water: the most common loss of rent claim
Escape of water (burst pipe; leaking boiler; leaking washing machine waste pipe) is the most common loss of rent claim in residential rental properties. Pipes burst in winter when properties are left unheated (e.g., a vacant HMO room). Water floods the flat below; the property is uninhabitable for 2-6 months during drying-out, strip-out, and reinstatement. Landlords should ensure their buildings insurance covers escape of water and that the sum insured is adequate for the total rental income.
HMO landlords: total room rental income
For HMO properties, the loss of rent sum insured must cover the total combined room rental income across all rooms. A 5-room HMO at £500 per room per month generates £30,000 per year, the sum insured should be at least this amount. HMO landlords must confirm with their insurer that the policy covers HMO occupation and that all rooms are included in the sum insured. Some standard landlord policies exclude HMOs or limit cover to a single tenancy rental income.