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Is Rent Guarantee Worth the Investment for Landlords?

As a landlord, all aspects of managing a property bear equal importance. Still, the one element that remains at the forefront of landlords’ minds is whether their tenant can fulfill their rental obligations. Landlord rent guarantee insurance has soared in popularity over the past few years, proudly becoming a must-have policy for many UK landlords. The burning question remains: is rent guarantee insurance worth the investment? Dive into our blog to discover the ins and outs of rent guarantee to help you determine if it is the right policy for you.

  • What is Rent Guarantee Insurance?
  • How Does Rent Guarantee Insurance Work?
  • Can Any Landlord Get Rent Guarantee Insurance?
  • How Much Does Guaranteed Rent Insurance Cost?
  • Top Tips for Buying Landlord Rent Guarantee Insurance
  • Is Rent Guarantee Insurance Worth It?
  • Rent Guarantee Insurance FAQs

What is Rent Guarantee Insurance?

Rent guarantee insurance (RGI) is a common type of landlord insurance that can protect you from profound financial implications if your tenant cannot pay their rent for whatever reason. Buy-to-let mortgage statistics gathered by Paragon in 2023 revealed that 36% of UK landlords experienced rent arrears in the last 12 months. Even the most reliable tenants can experience sudden changes to their financial situation, leading to rent arrears. As it can take up to 6 months to evict a tenant, landlords can face a considerable loss of rent during this time.

How Does Rent Guarantee Insurance Work?

If tenants fall into arrears, landlords can reclaim the loss of their rent through the rent guarantee insurance. Typically, the policy can only be used if the landlord seeks repossession of their property. 

What Does It Typically Cover?

The extent of what and how much a policy covers will vary by supplier, but generally, the following is included in most RGI policies:

    • Lost rent – This tends to cover rental payments for 6 to 12 months; however, monthly and maximum limits typically apply.
  • Landlord legal expenses – Useful when a tenant falls in arrears and refuses to vacate. Legal fees can quickly add up during eviction, especially if the matter escalates to court. Expenses are usually between £50,000 and £100,000 to cover eviction costs.
  • Legal advice helpline – Landlords can access a helpline to get advice on various legal matters.
  • Rent Coverage – Up to 50% of rent paid for up to 3 months following a successful eviction in which the property is vacant while landlords find a new tenant.

What Does it Not Typically Cover?

    • High-risk tenants – Tenants must be appropriately screened to apply the policy. If tenants are deemed high-risk, a landlord claim will be dismissed.
    • Sale of property – if the landlord chooses to sell their rental property
  • Commercial properties
  • Contract disputes – legal expenses may not cover rental contract disputes.

 

Can Any Landlord Get Rent Guarantee Insurance?

In order to be eligible for RGI, landlords must present a written tenancy agreement and evidence that their tenant has passed tenant referencing. Landlords can only claim loss of rent from tenants who have passed the tenant referencing as they are considered high-risk tenants. If a tenant fails to pass the referencing, landlords may still be able to get RGI if they can provide a guarantor who will pay the rent on their behalf if they cannot pay it for whatever reason.

How Much Does Rent Guarantee Insurance Cost? 

The cost of rent guarantee insurance is dependent upon several factors:

 

  • Type of tenants in the property
  • Type of property (house, flat)
  • Location and size of property
  • Level of rental income
  • How much coverage you want (basic, standard, premium)
  • The inclusion or exclusion of legal expenses
  • How much excess you are willing to pay – The excess cost is customisable; the higher the excess, the lower the premium.

 

The average cost for a rent guarantee insurance policy in the UK is approximately £180 a year. As taking out an RGI policy is becoming more popular, the market is becoming extremely competitive, so shopping around for the best deals is advisable. 

Top Tips for Buying Landlord Rent Guarantee Insurance

Before committing to an insurance policy, these are some of the top tips you should follow:

  1. Make sure to read and develop a good understanding of a policy’s terms and conditions, paying extra attention to what you can and cannot claim for. Contact the provider for clarification if you are unsure about any policy elements.
  2. Determine how much excess you are willing to pay towards your claim. Policies that do not require you to pay excess tend to have higher premiums; it is personal preference if you are willing to pay excess.
  3. If you discuss any details with a provider, ensure you get written confirmation covering extra elements not explicitly written in your policy. Keep this safe in case you need to refer back to it if you come to make a claim.
  4. Prepare yourself to contact your insurer immediately if there are any changes to your circumstances regarding your tenant or the tenancy agreement. Your policy provider must update your record so your policy remains valid.

Is Rent Guarantee Insurance Worth It?

 

One of the elements of RGI that stands out to landlords is the promise of peace of mind. While no current landlord insurance policy is a legal requirement, landlords may feel more secure in their tenant selection with a rent guarantee insurance policy under their belt. 

 

A harsh reality that many landlords face eventually is that no matter how much time and effort they put into finding the perfect tenant, many factors can influence their ability to pay their rent on time every month. So, the added security that the policy can provide to landlords will provide peace of mind.

 

Landlords should feel confident that their tenants’ rental fees will cover their mortgage payments. In an ideal world, all landlords will have an emergency contingency put aside in the event of a rent arrear. But, if landlords rely solely on rent to make their mortgage payments, then RGI is worth the cost for the added security the policy will provide.

 

It is a personal preference for landlords whether they wish to invest in rent guarantee insurance; however, for those that do, they fully endorse the policy as it can take all the stress away, making them feel protected in case of an unfavourable situation. 

Rent Guarantee Insurance FAQs

Is rent guarantee insurance the same as a guaranteed rent scheme?

 

While they may seem similar, rent guarantee insurance differs from a guaranteed rent scheme. A guaranteed rent scheme is applicable for landlords who lease their property to an agency for some time, and they become responsible for managing all aspects of the property. By entering a guaranteed rent scheme, landlords hand over control of their property in exchange for a monthly income regardless of whether a tenant is living at the property.

 

What do I do if I take out rent guarantee insurance and change my mind?

Your policy agreement will usually be valid for 6-12 months, depending on the type of policy that you took out. After your policy expires, you are not obligated to renew it.

 

What are the pros and cons of rent guarantee insurance?

Pros

  • Your rent will be covered if a tenant is suddenly unable to pay their rent
  • Added peace of mind and security that your mortgage payments will still be covered if a tenant defaults on payment
  • You can receive up to 50% of your rental payment for 3 months during a vacant period

 

Cons

  • You cannot claim rental arrears that started before the policy was taken out.
  • Rent guarantee insurance will not continue to fund your rent payments if you cannot find a tenant after 3 months.
  • Once your policy’s limit has been reached, you cannot claim further arrears even if the dispute is unresolved.

Confidently Rent Your Property with LevelUp

At LevelUp, we offer services dedicated to maximising your investment. We appreciate the stress and hassle that comes with managing your property portfolio. Our team is made up of experts who manage all aspects of a property, from tenant selection to routine maintenance and repairs. We conduct a detailed tenant selection and referencing process to ensure that only the best tenants will occupy your property. Combining a rent guarantee insurance policy with our knowledge and expertise guarantees a smooth renting experience for your property. Leave your property in our trusted hands; contact our team today for more information.

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