Rent guarantee insurance might be a worthwhile option if you’re renting out property. The way rent guarantee insurance works is that you pay your premium and you will be covered if your tenant fails to pay their rent, or your property is without tenants for some other reason. It’s a good idea for peace of mind – particularly if you rely on monthly rent to fund your buy-to-let mortgage payments. However, it is another cost that you need to factor in.
What is rent guarantee insurance?
Rent guarantee insurance is a product that covers you if you are in the unlucky position of having a tenant who doesn’t pay their rent. It’s a reassurance for landlords because rent arrears can happen to anyone, often unexpectedly, and evicting a tenant can take some time, during which you are losing income. As we’ve said, it’s vital if you would struggle financially without rental payments.
What does landlord rent guarantee insurance cover?
Policies will vary so check the terms carefully but rent guarantee insurance usually covers unpaid rent for up to a year along with legal expenses to evict the tenant. Your policy may also cover you if you can’t find a tenant or are unable to let the home for another reason – flood or fire damage, for example. Other forms of legal cover, such as against damage by your tenant, may also be included. There may be clauses in your contract which mean you aren’t covered for the first month and that you need to have undertaken thorough tenant referencing before you let the property.
How does rent guarantee insurance work
Here’s an example of how rent guarantee insurance might work in practice:
- Your tenant misses a rent payment on 1 June.
- You request a claim form from your insurer.
- You contact your tenant in writing and ask them to pay the rent they owe, followed by another letter seven days later if they haven’t paid.
- If the tenant still doesn’t pay, and your policy has been in place for the stipulated time (usually 90 days), you can make your claim.
- As you don’t usually receive payments for the first month, you will begin to receive a payment from your insurer on 1 July.
- You will continue to receive a payment until the maximum length of your contract (usually six months to a year) or your tenant has been evicted.
- Check your policy and make a claim for legal expenses associated with the eviction if you can.
How much is rent guarantee insurance?
How much you pay in premiums will vary depending on the level of cover, the size of the property, its location and whether it is let on an individual basis or as a house in multiple occupation (HMO). Some packages may include other additional cover. We recommend always getting a few quotes – you can use a comparison site for this, checking that the cover is the same for each quote and adequate for your needs. Also check the level of excess offered by each company when weighing up the options.
Is rent guarantee insurance worth it?
Like any insurance, rent guarantee is cover in case the worst happens. If you don’t take out the insurance, you may be lucky and have model tenants with no loss of income. But if a tenant defaulting on their rent would have a serious impact on your income, the peace of mind offered by rent guarantee insurance probably is worth it. Remember that in the current cost of living crisis, many people are struggling to pay essential bills so a back-up plan may be more useful than ever.
Rent guarantee insurance vs rent guarantee schemes
Rent guarantee insurance shouldn’t be confused with a rent guarantee scheme. The former is an insurance product to cover you for missed rental payments in return for a premium. The latter is a way of renting out property that gives you a guaranteed income during the term of the agreement.
We have developed the ABC Gone Absolute Rent Guarantee scheme. The scheme offers one, three and five-year-lease services where we guarantee you the full monthly rent without fail for the term of the tenancy – even if your property is empty. Not only does the service mean you don’t have to worry about a tenant who fails to pay their bills, we also deal with all the stresses and strains of managing a property for you.
Find out more about our service and get in touch today to discuss your own needs as a landlord.
