Rent guarantee insurance is a relatively new phenomenon which seeks to cover those times when your tenant does not pay the rent. It sounds simple enough. Having this kind of insurance could be good for landlords who have tenants in areas where the workers may be more transient, or where rents are high in comparison to wages/ jobs.
With the advent of ever rising rents and defaulting tenants, this type of rental insurance can be seen as a way to mitigate risk, however, there are some important points to look out for, and, as with any insurance, if you don’t abide by their rules they may not pay out.
As a landlord there can be circumstances when you would prefer to agree with your tenant to accept a delayed rent payment from them, rather than to make an insurance claim. You will have to make a decision fairly quickly though for the insurance policy to work and pay out.
4 Things Rent Guarantee Insurance Should Cover
- Rental payments guaranteed for up to 12 months ( or as little as 8 months maximum, due to policy conditions.)
- After vacant possession is complete, then 50% of the rent is usually paid, for up to 3 months, giving you time to find a new tenant.
- Legal cover for eviction costs with an in house team to handle claims quickly.
- Legal cost of up to £50,000 for evicting your tenant.
Other Things To Be Aware Of
- The first month of any claim is often excluded, and in some policies, up to 90 days are excluded.
- Be aware of any extra fees they may add on, for early policy cancellation etc.
- Most policies won’t allow a claim in the last month of a policy.
- Some policies may exclude certain types of tenant such as students. If they are your core market, rent insurance may not work for you.
- Policies will all have clauses around the length of time a property can remain empty.
- All policies rely on the tenant being thoroughly credit checked first; usually by the insurance company, tenants deemed a higher risk will often fail to pass.
- Make sure it does not have an ‘excess’ payment-otherwise it may not be worth it for low value rents.
- Claims cannot usually be backdated.
- Rent guarantee insurance typically costs 3-4 per cent of your rent over the year.
- Some letting agents offer rent guarantee insurance free if your tenants score highly on credit reference checks.
Documentary evidence will be needed to prove a claim, so you will have to be diligent in record keeping should you wish to go ahead. Policy renewals are not always guaranteed, which means a swift decision will be required to start eviction proceedings immediately on a defaulting tenant, and, if the tenant defaults near the end of a policy, the company may choose not to renew, leaving you fronting the bill for any eviction costs.
Rent guarantee insurance is not for everyone, but can provide a good tool for larger portfolios. As always, the devil is in the detail. Make sure you run the numbers for the type of tenant that you regularly get. Read and understand fully what you can and can’t claim for on the rent guarantee insurance policy. This will allow you to get a balanced view of the pros and cons before signing on the dotted line.
