Rent guarantee insurance- is it worth it?

Being a landlord presents both rewarding and challenging aspects.

Among these challenges, the potential for rent arrears and the inability of tenants to afford rent, alongside the costly and time consuming process of eviction.

Shelter reports that approximately 3.2 million working renters in the UK, would struggle to pay rent beyond a month if they lost their jobs.

With rental rates at record highs, the risk of rent payment issues is on the rise.

However, landlords can mitigate financial risks through rent guarantee insurance.

This insurance option, also known as tenant default insurance, can be added to existing landlord building or content insurance policies.

It offers coverage for lost rental income if tenants fail to pay rent, typically until they resume payments, are evicted, or reach a maximum unpaid rent limit.

Before applying for rent guarantee insurance, landlords should ensure tenants undergo credit checks, provide references, and adhere to the insurer's tenancy agreement criteria.

Application processes vary; landlords can inquire with their insurance provider, compare options on comparison sites, or seek assistance from insurance brokers.

Rent guarantee insurance typically requires inclusion in the insurance policy, possibly alongside legal cover. Landlords or their agents must formally request unpaid rent from tenants and follow up if necessary.

Some insurers mandate a 90-day waiting period before making a claim, emphasising the importance of securing insurance promptly after tenant occupancy.

Upon submission of a claims form and evidence, approved claims cover unpaid rent minus an agreed excess.

Coverage typically includes missed rental payments for six to 12 months, along with legal expenses for eviction, up to a specified amount.

However, certain scenarios, such as property sale or disputes over rental contracts, may not be covered.

Rent guarantee insurance usually does not extend to pre-existing arrears.

The cost of rent guarantee insurance varies based on property type, coverage level, tenant risk, rental income, excess amount, and inclusion of legal expenses.

Considerations regarding rent guarantee insurance include its ability to provide peace of mind regarding missed rental payments and potential assistance with legal expenses.

However, landlords should be prepared to pay an excess and the first month of missed rent, while also acknowledging coverage limitations in certain scenarios.