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.
Your sums insured are the values of what you need your policy to cover. The main sums insured you need to calculate are your buildings, contents and property owners’ liability:
Buildings:You should give your insurer the rebuild value of your property, rather than the market value or the price you paid for it. You can use the Association of British Insurers Rebuild Calculator to help you work this out.
Contents: You should give your insurer a total value of the replacement cost of your contents at your rental property. Create an inventory by going to each room, and noting everything you would need to replace in the event of a claim.
Property owners’ liability: You can usually choose a limit of £1 million, £2 million or £5 million. While a lower limit should be sufficient, you may need to choose higher cover if you rent several properties. If you do not give the correct sums to your insurer, you may not be able to recover the full cost of any claims.
Choose the right loss of rent cover
This covers the loss of your rental income if your tenants have to move out because of damage to your property.
It is important to get the right cover to protect loss of rental income, especially if you rely on your rent to pay your mortgage. Your insurer will ask you to specify:
Monthly rental income: Some insurers ask for the monthly figure you earn each month, and others offer a percentage of the rebuild value of your property.
Indemnity period: This is the time you need to claim for while your property is being repaired. You can usually choose between 12, 24 and 36 months. Think about how long it would take to rebuild your property and find new tenants.#
Loss of rent cover is not the same as rent guarantee protection, which covers you if your tenants fail to pay. Here is more information about rent guarantee insurance.
Cover your tenants
Tell your insurer the type of tenants you let to, as this will determine the sort of cover you need and may affect the price of your insurance:
Professional let: Letting to working professionals usually earns you a cheaper premium, because they are considered least likely to cause damage or withhold rent.
Students: Letting to students is usually more expensive, as insurers think they are more likely to cause damage to your property. An insurance broker could help you find specialist student cover.
Department of Social Security (DSS): Letting to tenants who claim housing benefits can be more expensive and you may struggle to get cover. There are insurers who specialise in DSS tenants, and a broker may be able to help you find cheap cover.
Tenants with pets: Some insurers do not cover pet damage, so look for a policy where you can add this if your tenants have pets. Order your good practice guide for letting to tenants with pets from The Dogs Trust Lets with Pets website.
Family members: Most insurers can cover letting a property to family members, but they may require a formal tenancy agreement to be in place.
Decide what optional cover you need
You can tailor most landlord insurance policies to include extra cover you may need, including:
Accidental damage: This covers things like tenants accidentally spilling wine on your carpets, or breaking a window. Some insurers include this as standard, but you usually have to add this for an extra cost.
Malicious damage by tenants: This covers tenants deliberately damaging your property. It costs more to add this to your policy, but is worth considering if you have had problems with tenants damaging your property before.
Pet damage: This covers property damage claims caused by pets, for example scratched flooring or chewed furniture. The Dogs Trust Lets with Pets have more advice about letting to tenants with pets.
Rent guarantee: This covers lost rent if your tenants stop paying, and includes legal expenses to help with evicting problem tenants. You may be able to add this to an existing landlord policy, or you can look for standalone cover on our comparison.
Home emergency: This provides immediate assistance, for things like burst pipes or boiler breakdown. You can give the home emergency claims number to your tenants, so they can report problems to your insurer straight away.
Look at specialist insurance
Some properties need more specialist cover than others, so speak to an insurer who can offer the right cover for your circumstances: Houses of multiple occupancy (HMOs)
A property is classed as a house of multiple occupancy if both of the following apply:
More than three tenants live there, who are not family members
Your tenants share a toilet, bathroom or kitchen
If you own an HMO you may need a licence from your local council, and there will be a number of extra responsibilities you will need to meet.
Some insurers cannot offer cover for HMOs or will charge more. If you have an HMO, an insurance broker can help you find specialist cover.
If you own several rental properties, it could be cheaper for you to insure all of them on one portfolio policy.
Most landlord insurers offer a discount for covering more than two properties under one policy, and you get the convenience of one policy document and one renewal date.
You should still compare single landlord policies to make sure you get the right cover for you at the best price.
Most landlord insurance policies include full unoccupied property cover for a period of 30 days. This means you still get full cover while your property is empty.
Some insurers offer unoccupied cover for longer periods, for example 90 days, but once this time is up you must meet the following conditions:
You must notify your insurer that the property is empty
You must visit and check the property every seven days
Water, gas and electricity must be switched off at the mains*
All doors and windows must be locked
All rubbish should be removed from the property
*Unless the electricity is supplying a security alarm.
If you fail to meet these conditions while your property is unoccupied, you may lose cover and your insurer will refuse any claims you make.
If your rental property will be empty for a long time, look at getting specialist unoccupied property insurance.
Pick your excess
Most insurers let you pick your excess, which affects how much you pay for your insurance. You can also pick different excesses for each section of cover.
A lower excess often means you pay more, but a higher excess may give you a discount.
Here is how to save money on your landlord insurance
Keep your insurer up to date
Once you take out cover, it is important to keep your insurer up to date with changes like:
Getting new tenants
The property being empty
Increases in rent
Increases in rebuild value or contents
Building works or refurbishments
Your insurer may refuse to pay your claims if you fail to inform them of changes to your circumstances, so make sure you call them to update your details as soon as possible.