Canadian Accredited Insurance Broker (CAIB) One Practice Exam

Following a fire that destroyed 65% of an apartment building, what type of loss is typically not covered by property insurance?

1. Damage to physical property

2. Loss of rental income

3. Replacement costs of the building

4. Cost of fire department services

The correct answer is: Loss of rental income

Loss of rental income is typically not covered by standard property insurance policies. While these policies generally cover damage to the physical property, the costs associated with loss of rental income fall under different types of coverage, often needing additional endorsements or separate policies, such as business interruption or rental income insurance. In the event of a fire, property insurance usually addresses the physical destruction of the building and associated replacement costs, ensuring that the property is restored to its pre-loss condition. The costs incurred for fire department services may also not be covered under typical property insurance policies, but they can be a liability if the property owner is responsible for such costs. However, loss of rental income is an important aspect of real estate and can significantly impact the owner, which is why specific coverage must be considered separately. Thus, obtaining additional coverage to protect against loss of rental income is essential for property owners who rent out residential or commercial space.