Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)Property InsuranceMedium
A client has an HO-3 Homeowners policy with a Coverage A (Dwelling) limit of $300,000. They rent out a detached guest house on their property. A fire, a covered peril, makes the guest house uninhabitable for two months while repairs are made. The fair rental value of the guest house is $1,500 per month. Assuming no other endorsements or deductibles apply, how much would the policy pay under Coverage D (Loss of Use) for the lost rental income?
- A$3,000
- B$6,000
- C$0, because Coverage D does not apply to rental income from a detached structure.
- D$1,500
Show answer & explanationAnswer & explanation
Correct answer: A. $3,000
Coverage D (Loss of Use) in an HO-3 policy includes Fair Rental Value, which covers the loss of rental income from a part of the dwelling or other structures rented to others, when made uninhabitable by a covered loss. In this case, $1,500/month x 2 months = $3,000.
Why the other options are wrong
- B. This is an overcalculation, possibly confusing it with the overall Coverage D limit, which is typically 20-30% of Coverage A, but the actual loss here is lower.
- C. This is incorrect; Coverage D specifically includes Fair Rental Value for structures rented to others.
- D. This represents only one month of lost income.
HO-3 Coverage D - Fair Rental Value
Coverage D (Loss of Use) in an HO-3 policy includes Fair Rental Value, which reimburses the insured for the loss of rental income from a portion of the insured premises rented to others, when made uninhabitable by a covered peril.
- Part of Coverage D (Loss of Use).
- Covers lost rent for the period of restoration.
- Applies if a covered peril makes the rented portion uninhabitable.
Memory trick: Extra living costs or lost rent, Coverage D is heaven-sent.