What is rental protection insurance?
If you are a landlord, you run the risk that at some point your tenants will not pay their rent. It can happen to even the most scrupulous landlord, even one who employs a letting agent and is rigorous about checks and references.
The economic climate doesn't help the potential for rent default – money is tight and employment is uncertain, so your tenant could easily fall on hard times. Of course, landlords are also struggling to make ends meet so a tenant who defaults can cause all sorts of problems. Would you be able to cover your outgoings if your tenants fell behind on their rent? And would you be able to fund any legal costs to try to recover the arrears?
Protect your rental income
Rent guarantee insurance, sometimes known as rent protection insurance, can offer a financial lifeline to many landlords. The policy covers the rent if your tenant defaults, though there are limits to most policies, so it is essential to read the small print.
You can usually buy cover for six or 12 months, depending on the length of your tenancy agreement - and the full cost is tax deductible against your rental income. The cover will usually pay up to a certain amount per claim.
For example, you might be able to claim for up to £2500 a month up to a maximum of £15,000, or until the tenant is evicted. You can usually put in a claim when the tenant is one month in arrears. However, you cannot normally make a claim within 90 days of setting up a policy. In other words, if you want to take out rent guarantee insurance, it's better to act sooner rather than later.
How much is the excess?
It is important to check the excess, which is the amount you have to pay towards each claim. An excess of one month's rent is not uncommon. You should also make sure your policy covers the particular tenants you have at the moment, as some policies exclude asylum seekers.
Do I need a tenant reference for rental protection insurance?
Most rent guarantee insurance policies insist the tenants have either appropriate references or a guarantor. Appropriate references might include written references from a previous managing agent or landlord, an employer and a credit check.
It's important to make sure you comply with any and all reference demands otherwise the insurer could refuse to pay out and the policy would be a waste of money. Your insurer might also insist on a particular type of tenancy agreement, as well as protection of the tenant's deposit under one of the government's approved tenancy deposit schemes.
What if I get into a legal dispute with my tenant?
If you get involved in a legal dispute with your tenant, perhaps over eviction, rent collection, or damage to the property, it can prove costly and time consuming. Legal expenses insurance can therefore prove a welcome addition to your insurance armoury as it will help to fund your legal costs.
You may find your rent guarantee insurance already includes legal expenses cover, though you can also buy it as a separate policy if required. There is usually a limit to the amount that you can claim under legal expenses cover, so check the details with your insurer. You might also find that you can only employ a solicitor from the insurer's chosen panel of firms.
What other types of cover can I get as a landlord?
Landlords should consider other types of insurance to safeguard their property investment. Buildings insurance is a must as it covers the structure of the property in case of fire, storm, flood and subsidence. It is also the landlord's responsibility to insure the building. A buildings policy might include limited contents cover, though the tenants should make their own insurance arrangements for their personal possessions. Many landlords these days also take out cover in case of accidental damage, plus a policy to insure a vacant property during void periods.
How much does rent guarantee insurance cost?
The cost of rent guarantee insurance depends to a large extent on the type of property, type of tenants and the rental income. However, one of the best ways to keep the cost down is to compare quotes from a range of different insurers – and MoneySuperMarket can help. Our online comparison service is free and independent, making it easier for landlords to find the right policy at the right price.
Guide to landlord insurance
Finding a cheap landlord insurance policy is one thing, however finding the right policy for your properties and your own individual needs can be a little more difficult. Take a look at our landlord insurance guide to make sure your policy covers all the bases.