Sunday, October 31, 2010

Rental Value Insurance in a Post Subprime Mortgage Crisis World

Given that the “American Dream” of home ownership had turned into a mortgage nightmare, has rental value insurance economically indispensable in our post subprime mortgage crisis world?

By: Ringo Bones

Born out of the need of a standard fire insurance policy protection to deal with indirect losses by endorsement, rental value insurance has now been seen as an economically indispensable policy in our post subprime mortgage crisis world. Given that fires could occur regardless of the prevailing financial climate, rental value insurance allows the tenant not to be required to pay rent depending on his or her lease or because of the operation of state law.

Protection against loss of rent on account of fire may be obtained through rental value forms. One of these forms provides that the company is liable for the loss of rent whether the premises are rented or not. However, there is no coverage for any portion of the premises which the insured could not have rented when the loss occurred because the season of the year or any other valid reason.

A special rental value policy is available for seasonal risk where the property has been leased to others subject to a written lease. Should the insured occupy a portion of the building, the form would also provide coverage for such premises in case of inability to occupy on account of fire.

Ever since it went global, the subprime mortgage crisis had shattered everyone’s dreams of home ownership and / or commercially lucrative real estate property ownership by sending home and real property equity down 50%, thus, turning the “American Dream” of home ownership into a mortgage nightmare. But can rental value insurance really prove economically indispensable in our post subprime mortgage crisis world?

In practice, such insurance policies only makes economic sense in locales where fire codes are sensibly enforced and fire control systems in buildings – like fire extinguishers and automatic fire sprinkler systems – are mandatorily installed. Or at least our 50% down home equity won’t go up in smoke without us being justly compensated. At least situating your own business in a property you don’t own seems economically sensible now thanks to rental value insurance.

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