This article will help outline the following;
- Things to be careful of when taking rent guarantee insurance out
- Why you should take rent guarantee insurance out
- Why you shouldn’t take rent guarantee insurance out
- Ultimately, you’ve got to decide if rent guarantee insurance is worth it for you or not.
Rent Guarantee Insurance, Is It Worth It or Not?
Recent research has found approximately 10% of landlords will experience rent arrears when renting out their property. Is this a risk you have to take? What options are there to negate this potentially frustrating situation?
You may be asking yourself some questions.
- What if my tenants fail to reliably pay their rent on time?
- But my mortgage payments will need paying if they fail to pay me.
- What do I do if there are issues through the tenancy that I’ll need to fund to address them?
- I want my money, isn’t it expensive to pay for legal expenses to recover my arrears or to evict my tenant?
How can I tell if my tenants are reliable and won’t fall into arrears?
Not all arrears stem from irresponsible tenants purposely choosing not to pay. In some circumstances, difficult times can impact and affect their affordability, such as losing contracts or jobs.
Your tenant being self-employed or a form of the contractor may run into difficulties securing a new contract in their line of work, or an employed individual could lose their job due to workplace cuts. These are things that cannot be foreseen, and some landlords find security in a form of ‘Rental Guarantee Insurance’.
So how can this insurance help me?
Whether you’re a buy-to-let investment landlord or have chosen to rent out a property you’ve lived in previously, this insurance could potentially save you money, stress, and time!
Is there anything I should be mindful of?
The last thing you want is to pay for an insurance policy, for the insurer to void the claim because you haven’t met their requirements. Insurance companies will usually be very strict that you have met the conditions of the policy.
They may have requirements such as, but not limited to…
- You have a detailed schedule of how much rent is owed
- You have a valid copy of the tenancy agreement with that tenant
- References completed to the required standard
- Copies of all communication with tenants in relation to the arrears and/or disputes.
- Proof of ownership for the property.
- Evidence you have protected their deposit with the relevant approved deposit scheme.
- Certificate of insurance from the insurer.
What’s the process when my claim is accepted?
If the claim is successful, the level of coverage they’ll provide will be dependent on what you purchased. If purchased, there is a level of cover where the insurer will serve the relevant eviction notices in time, and consistently going forward. You’ll then be paid out an agreed amount to cover arrears and any legal expenses you may have already paid for from the eviction process.
Again, depending on the level of cover you may receive an amount of payment to cover a partial, up to full payment to cover rent for a specified period after the tenant has been evicted. It’ll ease the burden of overhead costs whilst you sort any property maintenance till the time you remarket the property and find another suitable tenant.
What conditions are there if I want to claim?
There will usually be a period at the start of the insurance policy where a claim isn’t able to be made, usually for the prevention of misusing their services. The average period outlined by insurers is the initial 60-90 days of the policy. It’s in the insurer’s best interests to ensure landlords aren’t taking out the policy with the knowledge the tenant is at high risk of falling into arrears and the insurer having to foot the bill.
Bear in mind that a policy cannot be taken out if your tenant is already in arrears, again, this is in the insurer’s best interest that their resources aren’t being taken advantage of.
So, the decision to purchase Rent Guarantee Insurance should usually be well thought out beforehand. No one can definitively guarantee consistent rent-paying tenants.
Are there any other associated costs?
Just like a car, home, or contents insurance, there is usually an applicable excess fee. This would be payable upon a claim being lodged by the insured party, in this case, the landlord.
The excess cost will vary between insurers and the services they offer. There are some that offer zero excess policies, but usually, the cost of the overall policy will reflect the fact there is no excess to pay in the case of a claim arising.
Doing independent research, asking questions, and weighing up the different levels of service between covers and insurers will hopefully give you peace of mind that you’re paying a sensible price for a comprehensive cover.
Look online at reviews with feedback on how other landlords have found certain insurers, you don’t want to involve one that’s difficult to deal with.
Have a chat with one of our property experts to see what options you have for rent guarantee insurance on your property.