Understanding Rent Guarantee Insurance for Landlords

If you are a landlord relying on rent to make a living, the soaring cost of living and rocketing interest rates could push you and your tenants into debt. Hence, it would be best to consider protecting your investment by taking out rent guarantee insurance.

Rent guarantee insurance replaces monthly rent if a tenant fails to pay.

A few landlord insurance policies include rent guarantee cover as standard, but with most, landlords must pay more for the extra service and peace of mind.

Don’t confuse rent guarantee cover with loss of rent cover. Loss of rent cover only pays if you can’t rent out a home damaged by an event listed in buildings insurance, like a flood or fire.

Rent guarantee cover only comes into play once a tenant has failed to pay their rent - and that’s when they are one month behind with most policies. Once kicked in, the policy pays for a set time - generally six or 12 months.

How rent guarantee cover works: The policy covers rent when a landlord needs to evict a tenant with rent arrears.

Although helpful, rent guarantee insurance is not mandatory for landlords, so don’t assume the policy includes the cover.

And not every landlord needs rent guarantee insurance.

For example, they may have a job or an extensive property portfolio to cover the cost of lost rent without financial risk.

However, taking out a policy is worth considering if you rely on the money to pay a buy-to-let mortgage or the loan against your home.

Ticking the boxes to make a claim

Insurers expect landlords to tick three boxes when applying for rent guarantee cover:

• You must have a written assured tenancy agreement with the tenant
• You must have satisfactory credit checks and references confirming the tenant can afford the rent
• You must have a deposit placed on protection taken before the tenant moves in

Most insurers refuse a claim if a landlord cannot prove these three points.

Rent guarantee insurance covers up to £2,500 a month for six to 12 months if a tenant does not pay the rent.

Some policies extend the policy to cover deliberate damage to a home, tenants outstaying a possession notice or a disagreement over repairs.

A few policies also pay half the rent for three months once the tenants have left.

An essential clause in the policy is for legal expenses.

Nearly all policies have legal expenses of up to £100,000 for lawyers and court fees to evict a tenant.

Like all insurance, the cost of rent guarantee coverage depends on how much rent the tenant pays and any excess you pay with a claim.

The excess often equals a month’s rent, although sometimes the amount is fixed.

Making a rent guarantee claim

The policy won’t pay out if you claim within three months of a tenancy starting or if the claim is late - which generally means more than 90 days after the tenant fell into arrears. Some insurers also reject claims if they are not informed of the tenant’s changing circumstances, such as rent rises or a change of jobs that impacts their income.

To claim against rent guarantee insurance, a landlord must:

• Send the tenant a ‘seven-day letter’ demanding the payment of any rent arrears. This letter is a last chance for payment, warning that the case may go to court if the rent is unpaid after seven working days.
• Issue the tenant a Section 21 or Section 8 eviction notice. A Section 21 notice is also known as a ‘no fault’ eviction.
• Report the non-payment of rent to the insurer within 30 days.

Where can I obtain rent guarantee insurance?

Rent guarantee insurance can be obtained from the Guild of Residential Landlords via our partner provider Alan Boswell Group.