No matter how thorough a landlord’s vetting process on their tenant is, they can always find themselves in the unenviable position of losing income because a tenant can’t pay their rent. Even good tenants may find themselves in a situation where they are unable to pay bills, for example if they lose their jobs, and then this has a knock-on effect for landlords. For smaller landlords, it could mean falling behind on their bills, and even for medium and large landlords and property managers, a shortfall in income is never good, and costs can rise considerably in legal fees if there is a need to evict the tenant. According to the Ministry of Justice statistics on landlord repossessions, it takes 20.4 weeks on average to repossess a property, that’s over 20 weeks of potential lost income.
Rent guarantee insurance (also known as rent protection insurance) can provide significant financial security to landlords, and cover rent shortfalls in the event that tenants fall behind on their rent. Rent guarantee insurance can be purchased for 6-12 months, and the cost of the insurance is tax deductible against all your rental income. Typically, the insurance will be able to cover you up to £2,500 per month per tenant up to a maximum of £15,000, and the insurance can usually be activated once the tenant is one month in arrears. The insurance can also cover legal expenses for disputes over unpaid rent or eviction, depending on your policy. Some policies can even cover damage to property by the tenant, and disputes on repairs with tenants.
What to look out for:
- Excess policies – Before getting the insurance, be sure to look the excess on the policy (what you have to pay before the insurance kicks in) one month’s rent is typical.
- Small-print – Make sure you know what exactly is covered and what is excluded, some insurance won’t cover certain types of tenant, so be sure you are aware of all the details.
- Pre-requisites – It is also important to ensure you comply with all the requirements, such as references or guarantors, otherwise any claim you make may be invalidated.
- Activation – Most policies cannot be activated within 90 days of being purchased, so make sure you know the conditions of your insurance before making a claim.
- Comparisons – As all insurance products, there are a range of options on the market, take the time to study the insurance provider’s policies and pick the best one for you.
One of the biggest risks of being a landlord is having a tenant that won’t or can’t pay their rent, and rental guarantee insurance helps cover landlords against these losses, and can ensure that landlord’s own financial situation isn’t adversely affected by unpaid rent. Given the recent legislation changes with government signaling its intention to scrap Section 21, rental guarantee insurance becomes even more important. This insurance could provide vital cover for landlords, as they face longer processes to evicting tenants, particularly if Section 8 isn’t reformed.
Rental guarantee insurance should always be combined with other measures like tenant referencing to ensure that the need to trigger the insurance is minimized. Many insurance policies for rental guarantees will insist on tenant referencing, and may specify what kind of referencing they want carried out.
Rental insurance is just one type of insurance to protect landlords from the financial effects of tenant arrears, but it doesn’t cover other problems such as accidents or damage to the property not caused by the tenant. The kinds of insurance out there include:
- Building insurance – This covers damage to the exterior of the property, and to things such as pipes.
- Contents insurance – This will protect the furnishings of the property from theft or damage
- Liability insurance – This is particularly relevant for student or social housing providers, and protects them from any legal claims made against them by tenants over accidents that happen in the property.