Rent guarantee insurance, also known as tenant default insurance, is a common landlord insurance add-on which can protect you from the serious financial implications of defaulting tenants.
Rent guarantee insurance is a type of landlord insurance which could cover your rental income, should your tenants be unable to pay their rent. Even the most reliable tenants can experience financial difficulties (especially during a pandemic or similar) which can result in arrears.
On average, it takes 22 weeks to evict a tenant; that’s around 7 months of lost rent during the time it takes to regain possession.
What Isn’t Covered By Rent Guarantee Insurance?
While it’s important to read the details of your policy carefully, to check what’s excluded from your policy, there are a few common exclusions:
- Deferral periods – you’ll typically find that you won’t be covered for the first month of rental arrears. You may also be unable to make a claim, for a set period, after taking out your policy. You should check details of any deferral periods before taking out insurance.
- The defaulting tenant leaves – if you manage to evict the tenant who’s defaulted on their rent, or they leave willingly, your payments will normally end. This may be regardless of whether you’ve found a new tenant, so it’s important to check carefully.
- You decide to sell the property – if you reach the point that you decide to put the property on the market, rather than attempt to find a new tenant, you’ll likely find that your rent guarantee insurance will stop paying out.
- Types of tenants – you may find that insurance providers will exclude certain types of renters. For instance, those who are unemployed, are on state benefits, or students, may be excluded from your cover, as they’re seen as a higher risk for defaulting on their rent. You should also ensure that you get a tenant reference, when possible, as there may be exclusions to tenants who fail to provide one.
- Commercial properties – if the property is used for business, you will need to arrange another form of cover.
- Contract disputes – you won’t normally be covered for any legal costs, if you and your tenant enter a dispute over the terms of your rental contract.
How Can I Protect My Income If I Can’t Rent Out My Property?
Although landlord insurance policies vary between different insurance providers, most will offer optional cover to protect rental income. This comes in the form of both rental guarantee and rent protection.
Rental income protection could cover the amount of rent you would’ve received during an unoccupied period, if you’re unable to rent out your property for an insured reason. These may include incidents like flood or fire damage. This is separate, and should not be confused with rent guarantee insurance/tenant default insurance, which can protect you when a tenant is unable to make their rental payments.
Before you apply for rent guaranteed insurance, ensure:
- You have a tenancy agreement in place and the tenants have been successfully referenced
- Your policy provides sufficient cover – check the maximum number of months and the total value from which you can claim unpaid rent from your tenant
Will I Be Covered For Legal Disputes With My Tenant?
Contract disputes with tenants aren’t usually covered by rent guarantee insurance. If you need cover for this, you should arrange a separate landlord legal expenses insurance policy.