What is landlord rent guarantee insurance?

Renting properties is a good source of income, but it also accompanies a certain level of risk. As a landlord, you may be at risk of losing money if your tenants fail to make their rental payments.

Half a million individuals who rent in the UK are behind in their rental payments. This is due to a variety of reasons, such as the increased cost of living, unexpected health issues and the rise in redundancy. Whether the late payments are due to financial issues or other reasons, landlords throughout the country have the potential to lose the income they make through renting.

Missed rental payments can end up costing you thousands of pounds – a major financial blow unless you have a safety net in place.

To avoid the financial ramifications that can accompany the loss of rental income, you can buy a type of rent guarantee insurance that is designed to help landlords if they face rent deferrals. It can act as protection in the period of time that you are without your regular rental income or whilst your case is discussed in court.

What is landlord rent guarantee insurance?

Landlord rent guarantee insurance, sometimes referred to as tenant default insurance, is a type of landlord cover that helps protect your rental income if your tenants fail to pay you what they owe. Some tenants may be unable to pay due to financial difficulties, or they may refuse to pay for other reasons. In this instance, you want to be covered so that you don’t lose out on your rental income.

Guaranteed rental income insurance helps offer protection to help you cover expenses for the property when the rent is late or isn’t paid at all. This means that you can still pay your mortgage payments as well as legal fees if you need to pursue a case against your tenant in court.

What does landlord rent guarantee insurance cover?

There may be periods of time that your tenants fail to pay you the rent that they owe. Whilst there is no way of knowing when this will occur, you can prepare by buying landlord rent guarantee insurance. It will cover the rent that you are owed for a set number of months, as well as some additional policies.

You may be covered for the cost of legal costs that arise if you take the tenant to court for the recovery of rent arrears or to evict and repossess the property. Your insurance policy could also offer legal advice on how to proceed before the case gets taken to court.

There is no way of knowing whether your tenant will successfully pay the rent each month. Even the most reliable tenants can have periods of financial difficulty, or you may find that the tenants are being deliberately malicious by withholding rent. You can conduct all the background checks that you want, including referrals or interviews, but there are some situations that are out of your control. A trusted letting agent could also find that tenants they have sourced for you don’t pay the rent that they are supposed to.

Landlord rent guarantee insurance will usually come with a set number of months that you will receive cover for. This usually ranges between six to 12 months. However, this doesn’t guarantee that you will receive the full six to 12 months of rental income that you have missed. The policy will have certain conditions that limit the period of months that you are allowed to claim. You will likely have a cap on the number of months that you can claim rent. Alternatively, the cover may be in place until the contract ends or your tenants are successfully evicted.

In some instances, you may have to have the guarantee policy in place in the months prior to your claim in order to receive the cover straight away. Your claim may also have to wait for a period of time (such as 90 days) if it is the first time that you have bought the cover and made a claim.

You may encounter excess for this type of insurance. Some policies require a fixed fee, whilst others may require the cost of one month’s rent. This amount will have to be paid before you can make a claim.

What isn’t covered by landlord rent guarantee insurance?

It’s a good idea to thoroughly check the stipulations of your policy to see what you are and aren’t covered for. Landlord rent guarantee insurance tends to feature several exclusions such as:

Sale of the property

Your policy may stop covering you if you sell the property rather than find a new tenant in the period that you are claiming for

First month of rent arrear

Many insurance companies won’t cover you for the first month that a tenant fails to pay rent. They may also stipulate a period of time after you have bought the policy that you are unable to submit a claim. It’s a good idea to check the deferral period before you buy insurance cover.

Types of tenants

You may find that you aren’t covered for tenants that fall into certain categories. This includes individuals who are unemployed, claim state benefits or are students. This is because there is a higher chance that they will default on their rent. It’s advisable to get tenant references if possible because you may not be covered by the insurance for tenants that haven’t provided them.

Commercial properties

Landlord rent guarantee insurance doesn’t cover properties that are used for business, so you will need to find alternative cover.

Contract disputes

You likely won’t be covered for legal disputes that arise because you and your tenants disagree over the terms included in the rental agreement.

Why do you need landlord rent guarantee insurance?

This insurance guarantees that you won’t lose money if your tenants fail to pay their rent. It will ease the financial pressure that comes when tenants miss their payments, especially if you rely on the rent as a major part of your monthly income. You may also need the rental income if you need the money to help pay for the mortgage on your property.

A few months of missed rent can soon amount to a loss of thousands of pounds, especially when you add in the cost of eviction and legal fees. The eviction or repossession process can be a very drawn-out and stressful process, which can be assisted by the cover offered by landlord rent guarantee insurance.

Having insurance means that you are protected in case you encounter problems with your rental income. It will help you in the months between regaining your lost income and finding new tenants. This means that you have more time before the missed payments begin to impact your personal finances.

How do you get landlord rent guarantee insurance?

Most insurance companies will require tenant references before they will offer insurance. These references can be from former landlords, an employer or a managing agent. Alternatively, the tenant may have a registered guarantor who will be capable of covering the rent if the tenant fails to pay it. You may also have to provide evidence that the tenant has been credit checked.

The tenants may have to sign on through a specific tenancy agreement and have a protected deposit under a government-approved scheme. Your claim may be invalid if you or your tenants do not meet the criteria when you make a claim. This will mean you won’t be offered cover for lost rental income or legal help during a court case.

FAQs

How much does landlord rent guarantee insurance cost?

The cost of this insurance will depend on various factors. This includes the type of property that you own, the amount of rental income that you are paid and how comprehensive the cover is.

Some insurance companies offer basic cover, whilst others offer slightly more cover with standard or even more with comprehensive cover. Location can also impact the cost of cover, as some areas have a higher rent average than others. The number of tenants living in each property can also affect the price of insurance, as can the type of tenant. For example, tenants on state benefits will mean you have to pay a higher premium, as would unemployed tenants. You may even find that you can’t insure your property based on the type of tenant that lives there because they are considered a high risk as there is an increased chance that they will defer on their rental payment.

Higher rent costs will usually mean a higher cost of insurance, as you will need more cover for your rental income if the tenants defer their payments.

What other types of insurance can I get as a landlord?

There are a variety of other types of insurance that you may need as a landlord. Some of these policies include:

Buildings insurance

Landlord buildings insurance offers cover if the structure of your property is damaged due to natural disasters such as floods, storms and fire. This can also cover built-in features that are damaged, such as fitted kitchens and wardrobes.

Contents insurance

Whilst some tenants may want to buy their own contents insurance for their belongings, it is still an advisable cover to have for your own contents in the property. This includes furniture, as well as additional fittings such as carpet, curtains and kitchen appliances. The insurance will cover you if the items are stolen, damaged by tenants or damaged by natural disasters such as floods and fire.

Unoccupied property insurance

There may be periods of time when there are no tenants living on your property. During this period, your property may be at a higher risk of vandalism or vulnerable to thieves. This insurance can cover you in-between tenants, during redecoration or refurbishments or after you’ve bought the property and haven’t yet lined up tenants to move in.

Liability insurance

Your tenants may take you to court if they are injured or fall ill as a result of issues such as your negligence as a landlord, an appliance in your house or the structure of the property. Liability insurance will help you cover legal and compensation fees in instances where you are involved in a legal case.

Summary

Landlord rent guarantee insurance is a type of landlord insurance that offer rental income protection if your tenants fail to pay the rent. This could be due to issues such as financial difficulty if they lose their job or because the tenant is withholding the rent deliberately because of malicious reasons.

A rent guarantee insurance policy may offer legal expenses cover in instances where you have to take the tenants to court because they have failed to pay rent. The rent guarantee insurance may also cover the cost of rent over the months that the tenant has failed to pay your rental income.

It’s worth noting that most insurance companies that offer rent protection insurance will have a cap on the number of months that they will pay for. This is usually between six and 12 months, although it will vary from one insurance company to the next. The rent guarantee policy may alternatively pay the cost of rent until the tenant’s contract ends or until you manage to evict the tenants.

Also read:
Do I need landlord building insurance?
Is the landlord or tenant responsible for buildings insurance?
Landlords’ insurance – the importance of proper cover