Every landlord fears that their tenant will stop, or will not be able to pay their rent. However, most investors with landlord insurance will be disappointed to discover that their unpaid rent is not covered.
The majority of landlord insurance policies include buildings and contents, liability cover, emergency assistance, and legal cover which will pay if the landlord need to take their tenant to court to evict them.
Some policies contain rental cover, however, this does not mean that they will pay if the tenant falls into rental arrears. In most events, they will just compensate lost rent for timeframes when a property is uninhabitable, due to another insured event, such as flooding.
To protect rental income against tenants in arrears or deliberate nonpayers, landlords will need specialist rent guarantee cover.
There are definitely positives to paying for these policies. In their recent tenant arrears tracker, Templeton LPA found that the amount of tenants in severe arrears is currently about 99,000; the highest figure since Templeton began recording.1
Landlords Warned of Rent Guarantee Pitfalls
Additionally, the National Landlords Association’s (NLA) Landlord Panel revealed that almost half (47%) of landlords have witnessed rental arrears in the last year.1
The NLA’s Head of Policy, Chris Norris, says: “Whilst 98% of landlords have some form of insurance in place, this is most commonly simple buildings cover, which would offer little support if a tenant were to stop meeting their rental commitments, despite thorough tenant checks.
“It is essential that landlords purchase the right insurance for their needs and understand the detail of the product before buying.”1
Rent guarantee insurance ensures landlords get paid, even when the tenant does not pay. This provides time for the landlord to contemplate their options, rather than hurrying the eviction process.
Norris explains: “The NLA recommends landlords protect their businesses and ensure they have sufficient insurance in place; unpaid rents could mean that they are unable to meet their mortgage payments.”1
For landlords who have guaranteed rent cover, it is fairly cheap and can be bought as an addition to standard landlord insurance, or as a separate policy.
Endsleigh’s six months’ rent guarantee cover is £64.60, whereas Just Landlords offer a 12-month policy for £90.10.
Landlords and their tenants are required to meet certain conditions for the tenancy to be covered by rent insurance.
The majority of policies ask that the landlord has an Assured Shorthold Tenancy (AST) and that the tenant has passed credit and reference checks. Landlords must also take and protect a deposit.
Regional Lettings Director at Kinleigh Folkard & Hayward, James Thornett, says that missing the criteria could result in the insurer not paying.
He says: “Little elements such as not having one required reference or being late in notifying the insurer of a default on the rent could result in an expensive outcome.”1
It is also important to look at when the policy begins paying out. Some start immediately, although others will wait 90 days.
The period for which the insurer will pay out also differs, with some specifying six months, and others paying until the tenancy ends.