What is Rent Guarantee Insurance?Make Text Bigger
Rent Guarantee Insurance in a nutshell is a financial product that protects you against loss of rent if your tenant stops paying.
There are many reasons why a tenants may stop paying rent. They may no longer be able to afford it. They may decide they are not going to pay it anymore because of a perceived bad service. They may even prefer to spend their money on alcohol and cigarettes than rent. In all these cases the landlord will lose out on rent and you can minimise that risk by taking out Rent Guarantee Insurance.
Rent Guarantee Insurance is not buildings insurance. You will still need standard landlords insurance for that and can get it here through Property 118 with a Price Guarantee. Rent Guarantee Insurance is an add on sale, an additional insurance product that is designed to meet a specific need – namely your tenant defaulting on rent payments.
Most policies will come with legal cover included as you will need to legally pursue the amount owed by the tenant and serve eviction notices.
Tenant referencing required
You will be required to fully reference any tenant before the insurer will agree to provider Rent Guarantee Insurance. If the tenant has a history of defaulting on payments and being evicted from properties then they are unlikely to be permitted and your application for Rent Guarantee Insurance will be declined. This is common sense really.
In reality your tenant needs to be working or have a guarantor for the rent that is financially sound before you can get rent insurance cover. You may struggle with DSS tenants as insurers see them as higher risk.
You will need to pay or prove the tenant referencing before you achieve the rent guarantee insurance.
Amount you can claim in lost rent
Most Rent Guarantee Insurance policies will go up to £2500 per month in rent cover. They will pay that typically for a maximum of six months out of every 12. You can increase this amount if required b y talking directly with the provider. Any increase in cover will increase the cost of the Rent Guarantee Insurance.
You will normally have one-month excess before the Rent Guarantee Insurance will pay out. That means you will not be paid out for the first month of lost rent. In theory you will have the deposit to cover that cost. Rent Guarantee Insurance will kick in from the second month providing you are taking all required actions under the policy. There are some Rent Guarantee Insurance products that you can buy without any excess and will pay out for the first month. These typically cost more than normal rent insurance by around 30%.
A typical claims process
It is straightforward to claim against Rent Guarantee Insurance by contacting the provider. Most of them will require you to go through a procedure to validate the claim. Most will require you to pursue the amount outstanding through the courts and also to evict the tenants. If you do not do this then your insurance will not pay out.
There may be other actions you are required to take and if you do not, then your claim will not be paid. These tend to be straightforward so don’t worry about them, simply do what your insurer requires. If you are in any doubt, read the schedule of the insurance before buying to know exactly what qualifies and what you need to do in order to validate cover.
It can take 30-90 days for the initial loss of rent to be paid out depending on the provider.
It is normal that the insurance will not come into force until 45+ days after you buy it. So if there is a default int he first 45-days then your claim will not be paid out as this is a major fraud risk for insurers.
How much does Rent Guarantee Insurance cost?
Property 118 offers various products through its close partner Discount Insurance. The Rent Guarantee Insurance is underwritten by one of the leading providers in the UK.
The product offering runs below:
12 Month – 1 months excess – £99.00
6 Month – 1 months excess – £54.75
12 Months – No excess – £129.95
6 months – No excess – £69.95
- Rents arrears cover up to £3,000 per month or a maximum of £18,000 per claim
- £25,000 of advisers costs
- Allows for tenancy agreements longer than 12 months
- 60 days between completion of Referencing and start of tenancy agreement
- 45 max claim days
- Rent arrears until vacant possession ( within Tenancy agreement dates)
- Legal Expense extended until vacant possession (outside of tenancy agreement dates)
- Options for Rental limits higher than £3,000