A landlord's worst nightmare is having a tenant who will not, or cannot, pay their rent. Whilst most landlords cover themselves for buildings, contents, liability protection and legal expenses, very few will purchase rent guarantee insurance.
What is rent guarantee insurance?
Rent guarantee insurance covers a landlord's income if their tenant falls into arrears with their monthly rent. According to Citizens Advice, half a million private renters in the UK are behind on their rent. The Money Advice Trust has reported that rent arrears are now the fastest-growing debt problem in the UK.
Some landlords wrongly believe they are covered under a buildings policy but this type of insurance tends to only cover rent when the property is damaged by fire, etc. So it is essential landlords purchase the right type of insurance for their needs and certainly rent guarantee insurance should be high on their list.
What does rent guarantee insurance cover?
The cost of rent guarantee insurance varies depending on the individual policy. It will be impacted by the property, the tenants and the rental income.
Most insurance providers will cover rent arrears up to a pre-agreed limit for either 6 or 12 months and will normally cover legal expenses in the case of a dispute. Premiums start at around £50 per month which will provide cover of around £500 per month of rent for a 6 month policy.
The cost of rental guarantee insurance is tax deductible against your rental income.
Are there any conditions regarding making a claim under a rent guarantee insurance?
- If rent is overdue you must contact the tenant within 7 days to establish the reason for default
- If the rent still remains unpaid within a further 7 days the tenant must be contacted again after which legal proceedings for eviction can be commenced
- Most insurers require the landlord to have an Assured Shorthold Tenancy Agreement in place and the tenant has passed a credit check and reference check
- Landlords will also be required to take and protect a deposit
Providers offer different terms regarding when payout commences and for how long they cover the rent. Some policies will pay out immediately while others will only pay out after 90 days of arrears, some will cover rent for a maximum of 6 months others until the current tenancy agreement ends.
Are there any alternatives to rent guarantee insurance?
Rent guarantee insurance is often overlooked by landlords but as we've demonstrated above is not overly expensive compared with the additional security that a policy provides. If you are using a letting agent you may find your agent can provide the cover at a competitive rate or alternatively you can use an independent broker that can compare the best insurance policies for you. The best independent broker we could find is Simply Business, a company that provides rental guarantee insurance quotes.