Rent Guarantee Insurance, commonly abbreviated to “RGI”, is a form of insurance generally provided by organisation who provide highly sophisticated and systematised professional tenant referencing services.
The insurance is generally offered where the tenant(s) are considered to be low risk in terms of their ability to pay their rent. Such things as credit status, credit score, income, time in employment and references from existing and past landlords and employers are all taken into account. The referencing typically costs less than £50 whilst rent guarantee insurance policies range from around £100 a year to an eye watering 12% of rent if you want it to be paid to you yearly in advance. The middle ground is to have the RGI provider collect your rent and pay it to you monthly whether or not the tenant pays on time or not at all. This costs between 3.5% and 6% per month.
The purpose of the insurance is to guarantee rent whilst the tenant is in possession of the property. If the tenant falls more than a month in arrears the insurance company will usually pay for all costs legal and Court costs associated with organising an eviction, plus the rent to the landlord until vacant possession is achieved.
There are several policy providers, some better than others. If you go for the cheaper options many of the insurers have strict terms and conditions and will use these to wriggle out of paying up. Examples of this are strict timescales for reporting the arrears problem and obtaining proof of the tenants former residence and identity.
I have always been an advocate of RGI for landlords who are highly reliant upon getting their rental income but equally I urge caution. Check the policy wording and special conditions very carefully or appoint a professional managing agent or rent collection agency who carries both Client Money Protection and Professional Indemnity Insurance to deal with rent collection for you. If the policy fails to pay out as a result of an agents negligence you will have a claim against your agent. However, remember that a claim against an agent for negligence is only as good as the agents ability to pay up too!
As a landlord with a large portfolio I previously chose to underwrite my own rent collection risks. However, more recently I have decided to outsource all of my lettings & management and to purchase RGI through my agent. This was a commercial decision, partly based on lifestyle choices and partly based on the constant tightening of regulations affecting landlords. I am now of the opinion that it makes more sense for me personally to transfer many of the risks and hassles of being a landlord to a third party. My agents are ARLA bonded, ARLA qualified, highly experienced and fully insured.
I pay 4% of rent + VAT for full lettings and management plus a further £10 + VAT per tenant, per month for RGI. Obviously I have to pay for repairs and ongoing maintenance on top of this figure but they organise it all for me and I just give them the go-ahead if I’m happy with the quotes they’ve organised for me to consider.
For more details of the lettings, management and RGI providers and services I use CLICK HERE.