Owning a rental property can be a great investment, but it doesn’t come without risks - one of the biggest being missed rent payments. Landlord rent guarantee insurance is a way to protect yourself by covering unpaid rent if your tenants can’t or won’t pay. In this guide, we'll break down how rent guarantee insurance works, what it covers, and whether it’s worth considering for your business.
What is rent guarantee insurance?
Also known as rental guarantee insurance, this type of policy helps landlords avoid financial trouble if tenants stop paying rent. It ensures a steady flow of income so you can keep up with mortgage payments, property maintenance, and other expenses, even when rent payments aren’t coming in. Essentially, it’s a safety net that protects your investment and keeps your finances stable when unexpected tenant issues arise.
When might you need it?
Rent guarantee insurance is useful in various situations where landlords face uncertainty about tenants’ ability to pay rent consistently. Key scenarios include:
Economic downturns: In times of financial instability or recession, tenants are more likely to experience job losses or reduced income, increasing the risk of missed rent payments.
New or unknown tenants: Renting to individuals without a rental history or strong references may pose a higher financial risk, making rent guarantee insurance a smart precaution.
Dependence on rental income: If your rental income is essential to cover your mortgage, property maintenance, or personal expenses, this insurance can safeguard your financial stability.
Multiple properties: Managing a portfolio of properties increases your exposure to non-payment risks. Insurance can help ensure consistent income across all properties.
High-value rentals: If you rent premium properties where the monthly rent is significant, a missed payment could cause a substantial financial hit.
In each of these cases, rent guarantee landlord insurance acts as a financial buffer, reducing the stress and impact of unpredictable tenant behaviour.
What does rent guarantee usually cover?
Most rent guarantee insurance policies offer a range of protections, though coverage can vary by provider. Common inclusions are:
Unpaid rent: Policies typically cover up to 100% of missed rent for a specific period, often between 6 and 12 months. Some policies may cap the amount of monthly rent they will pay.
Legal expenses: The cost of legal action to pursue arrears or initiate eviction proceedings is usually included, often up to a set limit (e.g. £25,000).
Eviction services: Assistance with regaining possession of the property if eviction becomes necessary.
Court costs: Coverage for expenses related to bringing a possession order case to court if required to enforce an eviction.
Additional fees: Some policies cover property damage caused by tenants or loss of rent during a void period after eviction, though these are not standard inclusions.
💡Editor's insight: "It goes without saying, but it's crucial to review the specific terms and conditions of any policy. Many insurers require landlords to conduct thorough tenant referencing as a condition of coverage."
Benefits of landlord rent guarantee insurance
Investing in landlord rent guarantee insurance offers several advantages that can outweigh the costs:
Financial stability: Protects your income by ensuring you continue receiving rent even if tenants default, reducing the risk of falling behind on mortgage payments or maintenance costs.
Legal protection: This covers the cost of pursuing legal action, which can be expensive and stressful, giving you access to professional legal assistance.
Peace of mind: Knowing that missed rent and eviction-related expenses are covered provides reassurance, particularly for landlords who depend on rental income.
Faster recovery of rent arrears: Many policies facilitate quicker resolutions by engaging experienced legal teams who specialise in tenant disputes.
Business continuity: Rent guarantee insurance helps ensure a steady cash flow, allowing landlords to budget effectively even during tenant disputes.
Comprehensive risk management: Combining this insurance with buildings and contents insurance creates a robust safety net against both physical and financial risks.
Drawbacks of landlord rent guarantee insurance
Cost: Premiums can add to property management expenses.
Exclusions: Some policies exclude specific tenant types or require stringent tenant referencing.
Claim conditions: Delays or conditions might complicate claims if proper procedures aren’t followed.
Limited duration: Coverage for missed rent is often capped at a set number of months.
How much can rent guarantee insurance cost?
The cost varies depending on factors like the rental amount, property location, and coverage options. On average:
Monthly premiums range from 3% to 6% of the monthly rent.
Annual premiums might start at around £150 to £300 for standard coverage.
Additional features, such as higher legal cost coverage or extended rent protection, can increase premiums.
Is it worth it?
Whether rent guarantee insurance is worth it depends on your financial situation and risk tolerance. It can be a wise investment if:
Your rental income is critical for covering property-related expenses.
You’re concerned about tenant reliability or economic uncertainties.
You want to avoid legal complications without incurring additional costs.
However, if you have long-standing tenants with excellent payment histories, you might feel the cost outweighs the risk.
Final thoughts
Rent guarantee insurance offers valuable security for landlords, protecting rental income and covering legal costs. While there are expenses involved, the peace of mind and financial stability it provides often justify the cost. Before purchasing, carefully review the policy terms to decide if it’s the right choice for your property business.
If you have a tenant issue and need legal advice, we're here to help. Our best-in-class landlord and tenant solicitors can guide you through a range of legal concerns. Get in touch today for a free quote and to discuss your case.