A Quick Guide to Rent Guarantee Insurance for Private Lettings

Let’s take a look into what Rent Guarantee is, how it works, and why you might need it for your property.

What is Rent Guarantee Insurance?

Rent Guarantee Insurance is an essential type of insurance if you rely on rental payments as a form of income. Typically added as an extra on a landlord policy, it covers you financially should your tenants fail to pay their rent.

In the event that your tenant falls behind on their rental payments, the insurance provider will reimburse you for the lost rental income, typically up to a specified limit and for a certain period.

What Does Rent Guarantee Insurance Cover?

Taking the Rent Guarantee Insurance provided by DABORACONWAY as an example, you are covered for up to £52,250 for Rent & Legal, divided as follows:

• Legal costs – up to £10,000.
• Rent protection – up to £42,000. The maximum Rent payable is £3,000 per month during the Period of Protection and until Vacant Possession, whichever is sooner. Rent Guarantee can cover your monthly rental income by up to £2,500 for a maximum of 12 months if the following applies:
  • Your tenant has fallen at least a month behind on rent
  • Your tenant is refusing to leave the property following an eviction notice
  • Your tenant has deliberately caused damage to the property
  • You are in a dispute with your tenant over repairs or renovations to the property
• Up to £250 for the cost of replacing a maximum of two external door locks on a like-for-like basis in cases where bailiffs have been required to evict the Tenant.

Do I Need Rent Guarantee Insurance?

Rent Guarantee insurance protects you against the financial implications of rental arrears caused by tenant default, legal expenses incurred in evicting tenants, and sometimes the cost of property damage caused by tenants. 

If you are financially dependent on your rental income, then rent guarantee coverage is a must. However, if your tenants have been through a thorough screening process, then the risk of tenant default may be lower.

Assessing risks and requirements

Evaluate the risks associated with your rental property and tenants to determine the level of coverage needed. Factors to consider include the reliability of tenants, the local rental market conditions, and the financial implications of potential rental arrears. Additionally, familiarise yourself with the eligibility criteria and requirements set by insurance providers, such as tenant referencing checks and minimum tenancy periods.

Choosing the right rent guarantee insurance policy

Research and compare rent guarantee insurance policies from different providers to find the best fit for your specific circumstances. Consider factors such as coverage limits, excess amounts, premium costs, and any additional benefits or exclusions. 

Tenant screening

While Rent Guarantee insurance provides financial protection, proactive tenant screening and due diligence remain crucial in minimising risks and ensuring a stable tenancy. You have poured a great deal of time and money into your buy-to-let property, and therefore you need to know that it is in safe hands.

Your Lettings Agent can conduct thorough tenant referencing checks, including credit checks, employment verification, and previous landlord references, to assess the reliability and financial stability of prospective tenants. 

Learn more about our Guaranteed Rent Scheme available for letting London properties, or contact us with any questions you may have - we are happy to help!

Posted on: 22 July 2024