Being a landlord can cause a lot of stress, especially if a tenant is unreliable when it comes to paying rent. What if there was a way to guarantee rent money was coming in? Many landlords would be grateful for a backup like that!
Rent guarantee insurance covers tenants not paying rent. It offers an easier alternative to removing a tenant and provides a safety net for landlords with unreliable tenants. Rent guarantee insurance specifically covers missing rent, not issues like property damage or vandalism.
Rent guarantee insurance can help landlords sleep a little easier, and it’s a good safety precaution for anyone renting out property. It makes renting out residences that much safer and easier for landlords. Keep reading to find out more about rent guarantee insurance!
What is Rent Guarantee Insurance?
Renting out property of any kind can be a difficult and time-consuming endeavor. Rent guarantee insurance takes a lot of the anxiety out of renting out properties. It started in the UK fairly recently and has been since adopted by the US, where a similar system called private mortgage insurance (PMI) already existed covering mortgages. Now, renting can also be secured by insurance companies.
In past years, landlords have had to rely on their renter’s good character to ensure that the month’s rent would be paid on time. Even today, many landlords will character check tenants to make sure they have a steady job and don’t have a record of missing payments. If a tenant doesn’t have a good history of paying or a job that supports them in the property they are pursuing, they can kiss the residence goodbye.
Even then, there’s always the chance that renters will fall on hard times, lose track of payments, or simply decide to stop following those old patterns of regular payments. New renters don’t have a background in renting which proves their reliability, which makes it hard for them to find a place to rent.
When a landlord is concerned about tenants not paying rent on time or at all, they can turn to rent guarantee insurance. Rent guarantee insurance is exactly what it sounds like: if a renter doesn’t pay, the insurance will cover the missing rent.
This isn’t just for late rent, as most rent guarantee insurance plans will only pay the missing money when the next payment period passes or about thirty days. The insurance payments will usually last roughly 12 months until the renter starts paying again or the landlord has a chance to remove the tenant from the property by either waiting for their contract out or evicting them.
You might wonder why a landlord would choose rent guarantee insurance over just evicting the tenant immediately, and there’s actually a really good reason for that. Eviction is hard, takes a long time, and often won’t get a landlord their rent money.
In the UK, eviction laws differ from region to region, but eviction is always a time-consuming process. It usually involves giving your tenant time to fix the issue (you can’t evict unless there’s a specific agreement in the rental contract the tenant broke) and a reasonable time frame to vacate if they don’t fix the problem.
Rent guarantee insurance has far less hassle than eviction. Sometimes, a tenant might not pay for a short period of time due to financial difficulties or other extenuating circumstances and eviction is not necessary, but the landlord is still dependent upon the rent. Either way, rent guarantee insurance is a good safety net to have and can give landlords peace of mind when it comes to their tenants without turning to extremes.
What Does Rent Guarantee Insurance Cover?
Rent guarantee insurance covers rent not paid by tenants living on the property. It will cover rent not paid by the tenant after a certain period of time has passed since the deadline for rent. Rent guarantee insurance will still be paid if the landlord chooses to evict the tenant following the failure to pay rent.
Depending on the contract, rent guarantee insurance will usually kick in at around thirty days, when the next payment period for the tenant has rolled around and they still haven’t paid for the previous period or are continuing to not pay their rent.
Not every rent guarantee insurance lasts for the same amount of time, but it will cover one to twelve months or until the tenant is no longer on the property or has started paying rent again. Rent guarantee insurance will pay the amount of the missing rent, but no other fees on the property like damages or theft.
It will cover the missing rent regardless of the reason behind why the tenant isn’t paying. For example, if the tenant has just fallen on hard times and can’t afford rent or just chooses not to pay for their place of residence any longer.
Rent guarantee insurance is fairly self-explanatory, it covers what it says it will cover in the name of the insurance!
What Does Rent Guarantee Insurance Not Cover?
Rent guarantee insurance protects landlords against a lot of damage and missing payments, but it isn’t the same as all-around property insurance. Exactly what rent guarantee insurance covers varies depending on the specific contract the landlord has with the company insuring them, but there are certain things it should always cover and most likely will never cover.
Rent guarantee insurance specifically covers rent, it does not protect against costs like property damage. Property damage can be caused by outside forces like storms and floods, but it can also be caused by the tenant.
Nobody can take perfect care of their residence all of the time, and it’s normal for tenants to leave behind wear and tear, but accidents, negligence, or other circumstances can lead the tenant to cause real and significant damage to the property. If the tenant caused the damage, it is up to them to pay for it.
If the damage was caused by a natural disaster, faulty machinery in the property, or just normal deterioration that happens when a property gets older, then it is the landlord’s responsibility to pay to repair it and is not covered by rent guarantee insurance. Because of this, along with rent guarantee insurance, landlords should consider basic property insurance to protect their assets as well.
Rent guarantee insurance will also only cover missing rent to a certain point. This is usually about twelve months. During this time, the landlord has a few options. They can give the tenant an eviction notice and start eviction proceedings so they no longer have to worry about a non-paying tenant.
They can also choose not to renew the tenant’s contract when it expires because of the failure to pay rent and basically wait out the tenant. They can also just see if the tenant is able to get back on their feet at a later date and starts paying regularly again.
Rent guarantee insurance doesn’t cover the lack of a tenant, if the landlord is just unable to find a tenant or doesn’t sign one after the previous tenants leave, rent guarantee insurance doesn’t cover that.
To avoid dealing with the hassle of evictions and property damage, landlords should filter out possible tenants and only rent to people willing and able to pay rent and who will treat the property responsibly. They should also secure insurance for other potential problems with the property.
What Does Rent Guarantee Insurance Usually Cost?
Rent guarantee insurance, like other forms of insurance, isn’t a set fee paid exactly the same for every property everywhere. That wouldn’t make any sense! It’s usually paid monthly and taken out of the rent paid by the tenant. There isn’t a set price for rent guarantee insurance, as it differs from company to company and contract to contract.
Rent guarantee insurance is a percentage rather than a set amount. It wouldn’t make sense for two different properties with two different prices to have the same cost of insurance! There’s still a range of what percentage rent guarantee insurance requires.
Usually, it will be somewhere between five and ten percent of the rent charged by the landlord, which will be taken directly from the tenant’s paid rent every paying period. This amount is influenced by the cost of the property and a few other factors.
It can be affected by the size and value of the property, the number of properties being rented out, and the location of the property. The company a landlord chooses to get their rent guarantee insurance plan from is also a big factor. These factors may statistically suggest how likely it is for the rent to be paid on time, a factor that impacts the rent guarantee insurance.
The cost for rent guarantee insurance pales in comparison to the cost some landlords end up paying while pushing an eviction on the tenant. Depending on the circumstances of the eviction, time in court may be necessary for the landlord, and going to court isn’t cheap. Legal fees can cost thousands of pounds, take anywhere from days to weeks to months to settle, and cause unspeakable stress. If missed rent payments are a serious concern, rent guarantee insurance can be a real blessing.
While there isn’t an exact number that can be put on rent guarantee insurance, it is a very small fraction of the overall rent being charged on a property taken directly from the rent. So, landlords will be sacrificing a small portion of their rent-based income to have peace of mind knowing that the rent is going to be paid no matter what. That peace of mind is what motivates many landlords to invest in rent guarantee insurance.
Pros and Cons of Rent Guarantee Insurance
Is rent guarantee insurance for every landlord? Well, that depends on the priorities of the landlord. Rent guarantee insurance is like any other form of insurance. There’s always a chance that you won’t end up needing it.
Just like flood insurance doesn’t promise a flood, there’s always the possibility that all of the tenants in a property will always pay their rent on time. That being said, the possibility of paying tenants is little comfort when tenants choose not to pay rent. Knowing you have insurance that isn’t being put to use feels a lot better than not having insurance when your basement floods or your tenant stops paying.
Rent guarantee insurance is a great safety net, especially if a landlord is renting to unknown or unreliable tenants. It can provide a lot of peace of mind and make landlords feel more comfortable renting. It can also be a really good soft landing for landlords when they decide to start an eviction over a non-paying tenant.
Evictions, as mentioned earlier, are not a simple matter. There has to be ample reason to remove the tenant and lots of paperwork filled out recording why the tenant was removed and that the landlord followed all the proper procedures while doing so.
Going through the entire eviction process may seem like too much work if the tenant is moving out anyway in a month or two and decides not to pay on their way out. In this circumstance, the landlord can lean on rent guarantee insurance. If you are a landlord who needs the income from paying tenants to live or to keep up the property/properties you rent out, rent guarantee insurance is a good idea! You can sleep a little easier knowing your livelihood isn’t reliant on the whim of your tenants.
If you can confidently say you are one hundred percent sure every one of your tenants will pay their rent or don’t falter at the idea of an eviction process, you can choose to invest the money you would pay for rental insurance elsewhere. You’ll just have to make peace with the lack of security surrounding your income.
Not every landlord has to run their property/properties the same way as everyone else. However, it’s a good idea to explore all of the options and security measures you can take when investing in property.
