If you’re a landlord, missed rent payments can have a significant impact on your buy-to-let business. Lost rental income may affect your ability to meet mortgage repayments and other ongoing property costs.
Rent guarantee insurance may help protect against qualifying unpaid rent, while landlord legal expenses insurance may cover certain legal costs associated with recovering arrears or repossessing a property, subject to the policy terms and conditions.
Rent guarantee insurance is an optional product and is different from the loss of rent cover that may be included with landlord insurance. Loss of rent cover typically applies when an insured event leaves a property temporarily uninhabitable or unlettable.
In brief: Rent guarantee insurance can protect landlords against qualifying unpaid rent, subject to the policy terms and conditions. Legal expenses cover may also help with certain costs associated with recovering arrears or repossessing a property.
What does rent guarantee insurance do?
Rent guarantee insurance is typically an optional add-on to residential let legal expenses insurance cover and is designed to protect landlords against qualifying unpaid rent when a tenant falls into arrears.
Exactly what constitutes “qualifying unpaid rent” depends on the individual policy. Different insurers may apply different definitions, conditions, limits and exclusions, so landlords should check their policy documents carefully.
Circumstances that may be covered can include a tenant falling into rent arrears or absconding while owing rent, subject to the terms and conditions of the policy.
Rent guarantee vs loss of rent and alternative accommodation cover
Although the names may sound similar, rent guarantee insurance and loss of rent cover protect against different risks.
What is rent guarantee insurance?
Rent guarantee insurance provides cover for qualifying unpaid rent, subject to the terms and conditions of the policy.
It is concerned with non-payment of rent rather than rental income lost because an insured event has made the property uninhabitable.
Rent guarantee insurance may be available as an optional add-on to landlord legal expenses cover.
What is loss of rent cover?
A landlord insurance policy may include loss of rent cover following an insured event. This may be included as standard or offered as an optional extra, depending on the policy.
It typically provides compensation for rental income lost when insured damage leaves the property temporarily uninhabitable or unlettable while repairs and reinstatement are carried out.
The amount payable may be subject to monetary or time limits or calculated as a proportion of the sum insured, depending on the policy.
What is alternative accommodation cover?
Some landlord insurance policies may provide cover towards the cost of alternative accommodation for tenants when an insured event leaves the let property uninhabitable.
Again, the amount and period covered will depend on the individual policy terms.
Rent guarantee insurance, loss of rent cover and alternative accommodation cover therefore address different circumstances and should not be treated as interchangeable.
When does rent guarantee insurance pay out?
When rent guarantee insurance pays out will depend on the policy’s definition of “qualifying unpaid rent” and the conditions that apply to a claim.
The policy may specify when a tenancy is considered to be in rent arrears and how many payments must be missed before a claim can be made.
Claims may also depend on the landlord having complied with policy conditions, including any tenant referencing requirements and having a valid tenancy agreement in place.
For example, Cover4LetProperty’s rent guarantee insurance policies require one approved credit reference agency report and at least one satisfactory and relevant written character reference for each tenant.
You may also need to demonstrate what steps you have taken to resolve the rent arrears with the tenant.
If a claim is accepted, an excess may apply and the amount payable may be subject to monetary or time limits. Check your policy documentation for the conditions that apply to your particular cover.
How does landlord legal expenses insurance help?
Landlord legal expenses insurance is a standalone policy that may be complemented by rent guarantee cover. It may help with certain legal costs associated with recovering unpaid rent or repossessing a property.
Legal expenses cover does not in itself reimburse the unpaid rent. Instead, it may cover specified legal costs involved in taking action against a defaulting tenant.
The nature and extent of the cover varies between policies.
Here at Cover4LetProperty, for example, cover may include:
- up to a maximum of £50,000 in legal costs to recover rental arrears from tenants whom you intend to evict or who have already absconded;
- compensation for lost salary or wages while you are away from work to attend court proceedings as the plaintiff, defendant or witness, subject to the limits set out in the policy;
- relevant civil disputes with tenants; and
- legal costs associated with court action to evict anyone other than tenants who have permission to occupy the property.
Always check the current policy documentation for the full terms, conditions, exclusions and limits of cover.
Tenant referencing requirements
Tenant referencing can be an important condition of rent guarantee and legal expenses insurance.
Insurers may require specified checks to have been completed before the tenancy begins. These requirements vary between insurers, and failing to meet them may affect your ability to make a claim.
Cover4LetProperty’s requirements include an approved credit reference agency report and a satisfactory and relevant written character reference for each tenant.
Check the requirements of your particular policy and ensure the necessary referencing has been completed and documented.
What happens when a tenant stops paying?
If a tenant misses a rent payment when it falls due, you may want to:
- contact the tenant to establish that the payment has been missed;
- find out why the payment has not been made;
- discuss how the tenant might repay the arrears;
- check whether you may have a valid claim under your rent guarantee insurance; and
- if you have landlord legal expenses insurance, consider whether legal action may be required to recover the arrears or repossess the property.
You should also check the notification and claims requirements of your insurance policy so that any relevant deadlines or conditions are met.
When should landlords consider rent guarantee and legal expenses cover?
Whether rent guarantee and legal expenses insurance is appropriate will depend on your circumstances and your ability to manage the financial impact of unpaid rent.
You may want to consider the cover if you are:
- reliant on rental income to meet mortgage repayments and other property costs;
- unable to comfortably absorb several months of unpaid rent;
- concerned about the potential legal costs associated with tenancy disputes; or
- looking for protection against qualifying unpaid rent and associated legal costs.
When comparing cover, consider the premium, excess, eligibility requirements and policy limits, as well as your ability to absorb a period of unpaid rent.
You can also read our guide to protecting your let property for more information about managing some of the wider risks associated with letting a property.
What isn’t covered by rent guarantee insurance?
Rent guarantee insurance does not cover every instance in which expected rental income is lost.
The circumstances in which a claim can be made depend on the policy’s definition of qualifying unpaid rent, together with its terms, conditions and exclusions.
For example, if an insured incident leaves your property uninhabitable and therefore unlettable, the resulting loss of rental income would typically fall under any applicable loss of rent provisions in your landlord insurance rather than rent guarantee insurance.
Landlord legal expenses insurance also does not in itself reimburse unpaid rent. It is designed to cover specified legal costs, subject to the terms of the policy.
Always check your policy documentation to understand what is and is not covered.
Rent guarantee and legal expenses FAQs
Is rent guarantee insurance the same as landlord insurance?
No. Rent guarantee insurance is a separate type of cover designed to protect against qualifying unpaid rent. Landlord insurance typically protects against insured risks associated with the property and the landlord’s liabilities, depending on the cover selected.
Is rent guarantee insurance the same as loss of rent cover?
No. Rent guarantee insurance may provide cover for qualifying unpaid rent, while loss of rent cover typically applies when an insured event leaves the property temporarily uninhabitable or unlettable and results in lost rental income.
Does legal expenses insurance pay unpaid rent?
No. Landlord legal expenses insurance does not itself reimburse unpaid rent. It may cover specified legal costs associated with recovering arrears or taking other covered legal action, subject to the policy terms.
Does rent guarantee insurance cover a tenant who absconds?
It may. Depending on the policy and its terms and conditions, rent guarantee insurance may cover qualifying unpaid rent owed by a tenant who has absconded.
Do tenants need to be referenced?
Tenant referencing is typically required, although the precise requirements depend on the insurer and policy. Cover4LetProperty, for example, requires an approved credit reference agency report and a satisfactory and relevant written character reference for each tenant.
Protecting your rental income
Rent guarantee insurance may provide valuable protection against qualifying unpaid rent, subject to the circumstances, limits and conditions set out in the policy.
When combined with landlord legal expenses insurance, it may also provide cover for specified legal costs associated with recovering arrears, repossessing a property or dealing with certain covered disputes.
To find out more about residential let legal expenses and optional rent protection insurance, contact us here at Cover4LetProperty.
Disclaimer: This article is for general information only and does not constitute financial or legal advice. Insurance cover, terms, conditions, exclusions and limits vary between policies, so always check the relevant policy documentation.
