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What is rent guarantee insurance?

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Rent guarantee insurance provides cover for landlords, should their tenants fail to pay their rent. Unlike building insurance, it’s not a legal requirement to take out rent guarantee insurance – but it is something you should think seriously about if you rely on your rental income to pay the mortgage on a buy to let property.

Do I need rent guarantee insurance?

If you don’t absolutely need your rental income to keep afloat, it might be worth getting quotes for rent guarantee insurance and deciding whether it’s a worthwhile investment for you. Rent arrears is one of the biggest issues affecting landlords, with some surveys saying that up to two thirds will feel the impact at some time. Even if your tenants have been prompt payers in the past, anyone’s circumstances can change, leading to problems.

Before you decide to take out rent guarantee insurance, it’s worth understanding how this product works, when it will pay out and what you need to do to make sure you are properly covered.

What is rent guarantee insurance?

Rent guarantee insurance covers you for loss of income if your tenants don’t pay their rent. In most cases, the policy will start paying out after a month of arrears and could cover you for up to 12 months. It will usually cover you for lost rental income of up to £2,500. Once your tenant has left the property, your policy may pay half of your lost rent while you find new tenants.

Rent guarantee insurance is separate from other policies you will need to take out as a landlord – buildings insurance and contents insurance, although it is sometimes included in landlord’s insurance packages – always check yours.

As well as covering you for loss of rental income, policies will usually reimburse you for deliberate damage, a tenant refusing to leave the property and disputes over repairs and renovations.

Legal expenses cover is generally included too, which can help if you need to take your tenant to court. Legal expenses insurance can include cover to a maximum of £100,000.

There will usually be an excess on your policy – typically of one month’s rent or a set figure such as £500.

What you need to know

For rent guarantee insurance to be valid you will usually need to comply with certain conditions.

  • You will need to have an assured shorthold tenancy agreement – find out more about these on the government website.
  • You will need to have conducted proper tenant referencing checks and credit checks, otherwise the policy may not pay out.
  • You will also need to have collected a deposit from your tenant and placed it in a government-backed deposit protection scheme.
  • Most policies won’t cover you for the first 90 days or for 90 days after you sign up a new tenant.
  • Your tenant will need to be at least a month in arrears before you can make a claim. You will also need to start eviction proceedings by issuing either a Section 8 or Section 21 eviction notice, whichever is most appropriate in your case. Find out more on the government website.

Remember – you probably won’t be covered for the first 90 days of the policy, or your tenant’s first month of arrears, plus there is likely to be an excess to pay, so it is always worth communicating with your tenant to give them every opportunity to meet the payments themselves.

How much does rent guarantee insurance cost?

As with all forms of insurance, your premiums will depend upon many factors, so it’s worth exploring costs on comparison websites. Don’t always go for the cheapest option – check that the cover is right for you and that the insurer you choose is properly registered in England with the Financial Conduct Authority.

Is there another option?

If rent guarantee insurance sounds like more hassle and expense, there is another option. Assetgrove’s guaranteed rent scheme offers you a fixed income for up to five years with no commission or fees and we deal with tenant arrears on your behalf. The scheme is completely different to rent guarantee insurance – find out more or get in touch today.

Neil Jennings

Neil background is in marketing and business development and has over 20 years experience in the field. He runs Asset Grove and is involved in the marketing strategy for most of our campaigns.

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