What is rent guarantee insurance?
December 11, 2023What is almost certain to give a landlord sleepless nights? That’s likely to be the tenant who cannot or wilfully chooses not to pay the rent when it falls due. That rental income is the very lifeblood of any landlord’s business after all – without it, the landlord might face dire financial difficulties and, perhaps, a threat to the business itself.
Yet, according to a story in the Guardian newspaper on the 9th of May 2023, one in twenty tenants are currently in arrears with their rent or have missed at least one payment.
As a landlord, what defences – if any – do you have against the risk of losing out on the vital rental income that keeps your buy to let business alive?
Landlord insurance
If you are a landlord, you’ll be aware of many of the threats to your business and you probably avoid many a sleepless night by relying upon specialist buy to let insurance.
This type of landlord insurance comes in many different forms and different policies protect against a variety of risks and perils. Core areas of cover for the majority of policies focus on the let property itself – your principal business asset, of course. To that extent, landlord insurance typically offers comprehensive building insurance against risks such as fire, flooding, storm damage, impacts, and in some cases subsidence.
Another key safeguard is typically provided by the landlord’s public liability indemnity insurance – offering a defence against claims from tenants, their visitors, neighbours, or even members of the public who have suffered an injury or had their property damaged through some contact with the let property.
Many policies also offer a degree of compensation for your loss of rental income following a major insured event that leaves the property temporarily unlettable or uninhabitable pending repairs and reinstatement. While these provisions will prove valuable in those particular circumstances, it is important not to rely upon them for the recovery of other forms of rent arrears.
Rent guarantee insurance
Although most landlord insurance policies do not include the rent guarantee insurance necessary for the recovery of rent arrears, this protection can be purchased separately as a valuable complement to your established landlord insurance cover.
Given the risks – and at a time when many tenants are facing financial challenges – you might want to give serious consideration to the purchase of rent guarantee insurance. You will then be protected against the loss of income (up to pre-set amounts) resulting from any rent default on the part of your tenants.
As a landlord, you were no doubt thoroughly conscientious about taking up references and performing all the usual checks before granting a tenancy. Despite those best efforts, however, you can never predict if or when a tenancy falls ill, loses their job, or otherwise falls on hard times and is unable to pay the rent.
That is when rent guarantee insurance may come to your rescue.
What does rent guarantee insurance cover?
Rent guarantee insurance comes in many different forms and the benefits will vary from one policy to another. The essential principle, however, is to indemnify you against the losses you incur when your tenants fail to pay the rent that falls due. As a general rule, the more you pay in premiums, the higher the limit on unpaid rent and other losses you may recover.
Typically, the insurance compensates you for any loss of rent – up to the limits defined in your policy either for a prescribed number of months or a financial limit each month – until you have regained vacant possession of your let property.
Rent guarantee insurance can also typically cover many of the associated losses – such as the legal costs involved in securing the eviction of the relevant tenants and any loss of earnings you incur by having to attend court proceedings.
Summary
In the present economic climate, many tenants are likely to encounter difficulties in paying the rent. Even a short-lived illness or temporary unemployment may push them over the edge into arrears of rent.
Your own buy to let business may also be struggling in the face of rising mortgage interest rates. And a loss of rental income over any extended period is likely to be unsustainable.
In those circumstances, you might be grateful for the protection of rent guarantee insurance.