Dwelling Policy Practice Test

Which of the following is NOT true concerning the fair rental value coverage provided in a dwelling policy?

1. It covers loss of rental income

2. It covers loss caused by damage to the property

3. It covers loss caused by the cancellation of a lease

4. It covers expenses incurred while renting substitute housing

The correct answer is: It covers loss caused by the cancellation of a lease

The assertion that the coverage does not extend to losses caused by the cancellation of a lease is correct. Fair rental value coverage is designed primarily to compensate the insured for the income they would have received from renting out a property if that property becomes uninhabitable due to a covered peril, such as fire or water damage. This means that if the property is damaged and unable to be rented, the policy will reimburse for the lost income. However, if a lease is canceled for reasons not related to a covered peril—such as a tenant deciding not to renew a lease for personal reasons—this situation would not be covered under fair rental value provisions. This coverage focuses on actual physical damage to the property rather than contractual disputes or decisions made by tenants. In contrast, the coverage indeed covers loss of rental income, loss caused by damage to the property, and expenses incurred while renting substitute housing. Each of these factors directly relates to the conditions under which a landlord can claim fair rental value, making option C distinctly different as it pertains to lease agreements rather than property damage.