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Rent Guarantee Insurance Guide
There may be plenty of potential problems that could arise for owners of rental properties, but one of the biggest issues is that of tenants who don’t pay their rent. This particular problem is not usually covered by most standard landlord insurance policies, so if a landlord wants this protection they may want to take out rent guarantee insurance. Almost all landlords in the UK could have standard landlord insurance, but far fewer may have optional additions such as rent guarantee insurance.
Rent Guarantee is Rarely Covered by Standard Insurance
Insurance policies designed for landlords typically provide coverage for a building and any contents that are owned by the landlord. In addition a standard policy may usually cover liability, emergency assistance, and legal expenses for situations where a landlord must evict a tenant. Sometimes, a policy might also have rental cover, but this doesn’t necessarily cover all situations where a landlord loses rent. Often, this insurance only covers periods where a property is sitting empty because it’s uninhabitable due to fire or another insured event. It doesn’t cover any situation where a landlord loses money due to non-payment of rent by a tenant. To cover this situation, a landlord could need specialist insurance.
What does Rent Guarantee Insurance Cover?
Rent guarantee insurance tends to cover rent in situations where a tenant defaults on their rent payments. This may mean a landlord gets some breathing space in which to consider their options for dealing with the tenant, rather than being forced into an eviction, which may incur costly legal expenses. Many landlords take this step because when a tenant doesn’t pay their rent, it could impact on the landlord’s ability to pay the mortgage on the property. As a result landlords often feel pressured to take action immediately when a tenant defaults on rent payments. Rent guarantee insurance could provide a landlord with a means to avoid this situation, so they could have time to find the best solution for recovering the money they’re owed by a tenant in arrears. Some rent guarantee insurance policies may also cover legal expenses incurred by a landlord who is forced to take a tenant to court to recover money or to obtain an eviction order. However, this is generally not included in a standard rent guarantee policy, and might require the purchase of additional cover. For a landlord, rent guarantee insurance could be an important way of protecting against tenants who let their rent fall into arrears. And it’s a common problem that many landlords may deal with at some point—at the end of 2015, more than 84,000 UK tenants were more than two months behind in their rent payments.
What Conditions Apply to Rent Guarantee Cover?
There are typically some conditions and restrictions that may apply to a rent guarantee policy in order for a tenancy to be covered by the insurance. For instance, a policy might require that the tenant who is in arrears must have been vetted with reference and credit checks in order for the tenancy to qualify for coverage. In addition, some policies may stipulate that the landlord must have been paid a deposit by the tenant. And, many policies require the existence of an Assured Shorthold Tenancy Agreement between the landlord and tenant. Depending on the insurance company, some may provide different levels of coverage according to how many of these conditions are met, with higher levels of coverage available for landlords who perform reference and credit checks on their tenants. Another condition that often applies is that if insurance is taken out in relation to sitting tenants, there may be a waiting period of up to 90 days before the insurance applies. Also, there might be a maximum number of tenants that a single policy could cover. This could mean it’s important for landlords to check the fine print carefully to make sure they’re covered for all the things they’re expecting.
Rent Guarantee Insurance Versus Rent Guarantee Schemes
In addition to rent guarantee insurance, there are also rent guarantee schemes, which may work somewhat differently to provide a similar effect. Under a rent guarantee scheme, a letting agent pays “rent” to a landlord for the use of a rental property for a defined period of time. The letting agent agrees to pay guaranteed rent to the landlord, and the letting agent sublets the property and is responsible for managing the tenants. Essentially, these schemes involve the landlord signing over the property to the letting agent for a finite period of time, and the landlord receives guaranteed rent payments in exchange. Landlords may wish to note that these guaranteed rent for landlords schemes could lead to problems, as the landlord is still ultimately responsible for the property, and risks losing money if something goes wrong. Landlords may also want to be aware of the differences between rent guarantee insurance and rent guarantee schemes, and make sure that they know what they’re buying when they enter into a rent guarantee agreement.
What to Look at When Comparing Rent Guarantee Insurance
Most rent guarantee insurance policies are fairly similar in terms of what’s covered with basic insurance, and the conditions that must be met for the insurance to pay out. For instance, most require that the tenancy have an Assured Shorthold Tenancy Agreement, that the tenant have paid a deposit, and that the tenant have passed credit and reference checks. The difference in policies is generally in terms of how much total rent could be claimed, and in the cost of premiums. Rent guarantee policies generally have a maximum claim amount or time limit. In addition, there might be differences in what kinds of optional extras are available, such as an excess waiver or cover for legal expenses.