Rent Guarantee Insurance- where can I get it?
What’s happened to rent guarantee insurance?
I was searching for rent guarantee insurance sometimes known as rent protection insurance for a new tenancy and could I find it…
Well it appears that landlord insurance companies have shut up shop quicker than a tart pulls up her draws at the first sign of syphalis. I’ve just gone to look to insure a new tenant against the ravages of tenant unemployment that is inevitably going to sweep the UK at least in the short term to find a whole string of missing web pages. Funny that! What are these companies on? The first sign of a real risk of having to pay out the insurance industry runs for the hills. In their defence or is it a PR stunt; some landlord insurance companies are pulling the rent guarantee insurance and it’s legal protection element because they don’t wont to be perceived as being responsible for evicting tenants in vunerable financial situation because of Covid-19.
I have just heard that Alan Boswell have REINSTATED THEIR RENT GUARANTEE INSURANCE
Unemployment amongst tenants set to rocket
Following the Covid-19 pandemic unemployment amongst tenants is expected to sky rocket. This could herald a dramatic rise in claims being made against their rent guarantee insurance. Many insurers have already ceased issuing any more rent guarantee insurance policies until the dust has settled on how it’s going to impact on the wider economy.
Unemployment amongst tenants is a spectre that haunts many landlords; especially those landlords with younger tenants. Unemployment has been rising dramatically as the the impact of Covid-19 has hit companies who have had to lay off staff. Without a salary many tenants are struggling to pay their rent.
How does rent guarantee insurance work?
The essence of rent guarantee insurance is that it relies on the prospective tenant being properly referenced and credit checked first; often by the rental guarantee insurance company. This will ascertain the risk to the insurance company and allow them to evaluate whether they are prepared to take on the risk of insuring the tenant.
Once the prospective tenant has passed the tenant referencing the insurance company should be able to offer the landlord rent guarantee insurance.
Despite recent increases in the number of landlords claiming on their rent guarantee insurance. A little bit of undercover work revealed that cover for a full 12 months of rent guarantee insurance under the Endsleigh scheme still comes in at just £100 for a monthly tenancy of £500 pcm. This interestingly has not changed since last year.
I was recently sent a landlord insurance renewal from Alan Boswell. Their own rent guarantee insurance scheme provided through Aviva quotes only £175 inc IPT to cover each rental property which reduces to £150 inc IPT if building insurance is taken out. They also work on a sliding scale, making it cheaper for landlords who want to cover more of their rental properties.
Their own rent guarantee insurance comes with legal expenses as standard which means that a landlord will also receive rent protection in the event of the tenant defaulting and then being faced with the legal expenses a landlord has to face such as the cost of conviction following the issuing of a section 21 notice.
The option for Alan Boswell rent guarantee insurance include:
• Options to cover up to £2500 rental income
• Up to 6 months’ cover
• Full landlord legal expenses up to £100,000 (including eviction costs)
• 75% of your rent amount paid for up to 60 days after you have regained possession of your property
• Landlord Legal expenses helpline 24/7
• All tenant types considered
What are the pitfalls of rent guarantee insurance?
1. It costs – the whole aspect of insurance is that some landlords see it as dead money. Ok- it may only be £40 per month but in 5 years of a tenant happily paying their monthly rent it could easily amount to £2400 lost over the period.
2. It requires the tenant being able to be referenced properly. Not all tenants will pass this such as tenants with CCJs or student tenants without sufficient credit history.
3. Because of 2 rent guarantee insurance is not available to all tenants.
What are the alternative ways of protecting your rent?
1. Taking a tenancy deposit
For years a landlord has used a tenancy deposit as a way of protecting themselves from the financial loss of the tenant not paying their rent.
If the tenant stops paying their rent and then moves out the tenancy deposit schemes will have to take into consideration any claims by the landlord against the tenancy deposit held by them. A claim for non payment of rent is included as a legitimate deduction by the administrators of the Tenancy Deposit Schemes.
It should also be one of the easiest to prove that the tenant has failed to pay. A landlord would just have to provide evidence of the tenancy and the rental account shortfall.
Landlords are generally advised to take at least two months of rent in advance and this should cover them for the period during which the landlord seeks possession through the courts; although the process can take considerably longer than the two months notice period for the legal procedures to take there course. The result is that a landlord could end up out of pocket even though they end up receiving the full amount of the tenancy deposit. Many tenants also show a resistance to paying more than 2 months worth of rent as a deposit.
2. Using a guarantor
The other method for a landlord to ensure that they receive rental payments; even if the tenant is unable or unwilling to pay is to obtain a guarantor.
A guarantor is a financially stable individual, preferably a homeowner who is prepared to stand behind the tenant in case of financial hardship. Ultimately, the landlord can then make a legal claim against the guarantor for the tenants’ non payment of rent.
We have recently set out in detail about the procedures and merits of using a guarantor.
Which method should I use to protect my rent?
The reality is that a landlord should consider using all three mechanisms to protect their future rental income. No one method is full proof. The exact combination will largely depend on the type of risk profile for the prospective tenant and this judgement is best made by you. It might also be wise to assess the performance of your rental portfolio. Some properties by the nature of the tenants they attract will represent a greater risk to a landlord of not receiving their rent.
In these cases a more defensive rent protection plan is warranted.