Before I dive into the details of Rent Guarantee Insurance (RGI) I want to quickly explain its overall place in the world of landlord insurance.
RGI is a type of landlord insurance, along with landlord building insurance, content insurance, landlord legal expense insurance and so on.
In theory, a landlord can take out all the available types of insurances, which will essentially cover different scenarios/situations. For example, a landlord building insurance policy will cover damage to the property itself (e.g. protection against fire damage), while landlord content insurance will cover items inside the property (e.g. protection against theft). Please go to the landlord insurance blog post for an overview of the types of insurances available for landlords.
What is Landlord Rent Guarantee Insurance?
So what’s this all about?
Simply, it’s an insurance policy protecting landlords against loss of rent. It’s most commonly relied upon when tenants fall into arrears and are unable to pay rent, or simply refuse to pay rent (for whatever reason). In this instance, the insurance company will cover the rent, or at least a percentage of it.
Most policies also cover legal expenses, in the event of tenant eviction, for example. Generally, if you’re dealing with a tenant that falls into arrears and is reluctant to vacate, the legal expenses can start stacking up because the case usually ends up in court.
The extent of how much the policy will cover will naturally depend on the type of policy acquired. However, the following is generally included with most RGI policies:
- Rental payment cover
- 50% of the rent paid, for up to 3 months after vacant possession has been obtained, whilst you find a new tenant
- Legal cover for eviction costs
Already it’s easy to understand why this type insurance policy can be incredibly useful and reassuring for landlords. One of the biggest and stressful problems landlords face is rent arrears, particularly if the landlord is relying on the rental income to make mortgage payments (which most are). Knowing the rent will also be covered can alleviate a lot of the stresses in landlord life.
Please note, if you have some form of landlord insurance policy, while it may not specifically be for rent protection, it may still come with some form of rent loss insurance e.g. I have a landlord building insurance policy which also covers 20% of any rental loss. So before getting a separate RGI policy, contact your existing insurer and find out if you’re covered for any rental loss. If you’re not covered, or are covered for certain amount (e.g. 20%), you may be able to pay a little extra to get full RGI coverage, like an upgrade package. Upgrading with your existing insurer may work out cheaper than getting completely separate policies with different insurers.
Do I need Landlord Rent Guarantee Insurance?
Just to clarify, no type of landlord insurance is currently a landlord legal requirement for UK landlords in England or Wales, including Rent Guarantee Insurance (RGI) or Landlord Building Insurance (although you’d be stupid not to have building insurance, and most mortgage lenders insist on it).
RGI is purely for pleasure. I mean that in a literal sense- as said, the policy can make landlord life so much more pleasurable. So, now allow me explain when rent guarantee insurance (RGI) is most effective and useful for landlords…
- New tenants
The worrying aspect with tenants, and I mean all tenants, is that you don’t really know how good they will be until they’ve been tenants for at least 8 months, maybe even longer. We just hope they’ll prove to be reliable on the back of our tenant referencing.
Tenant referencing is crucial and it’s one of the best ways to separate the wheat from the chaff, but in reality, even the seemingly best tenants can result in terrible tenants. And moreover, circumstances can change over night for even the best of tenants- that’s something referencing can’t do, predict the future.
I’ve personally had problems with working professionals that had mouth-watering financial references. Point being, referencing will only give you part of the picture, not the overall outcome.
So it’s always useful to have RGI for all NEW tenants, despite how appealing their references are. Once you’ve built a good working relationship with the tenant, you can always resist from renewing he policy once it expires. However, many landlords keep renewing the policy for extra peace of mind, because anything can happen in this turbulent economy. But the most effective time to get a policy- if you’re ever going to get one- is when you’re starting a new tenancy.
- If you significantly rely on rent to make mortgage payments
In an ideal world ALL landlords will have a sensible emergency contingency put aside, so if shit hits the fan there’s enough to cover the costs. However, in the real world, many landlords aren’t that sensible- they rely on the monthly rental income to cover all their monthly expenses, and without it they find themselves drowning. Some landlords are a little more sensible, and they can survive for a month or two before they start feeling the pinch.
The problem is, when a tenant falls into arrears, rent payments usually come to an immediate halt for several months, especially if you end up having to go to court to evict the tenant.
If you’re one of those landlords that heavily rely on mortgage payments to stay afloat due to an inefficient contingency/working capital, RGI would be a very wise option for you.
- Expecting turbulent times
Some times, if you’re lucky, your tenant will notify you that they’re experience financial difficulties, or may experience difficulties in the near future due to work-related uncertainties. So you’ve been warned. It may even be the case that you simply suspect the tenant is experiencing difficulties due to unusual payment patterns e.g. the tenant might pay rent 1 week late one month.
In those circumstances, it might be best to get a RGI policy and cover yourself… just in case.
- If you simply don’t want to worry
As said, RGI can alleviate a lot of stress, because you don’t have so much about rent. If you’re willing to pay a premium for that extra reassurance, despite the fact you may have wonderful tenants- but understand ‘anything can happen’- then RGI might just be the sensible option for you!
- DSS tenants
Rightly or wrongly so, DSS/DWP tenants are generally seen as high-risk compared to any other type of tenant. Statistically speaking, they are more likely to fall into arrears, so RGI cover could be extremely useful in this situation.
Be warned, many insurers are reluctant to offer RGI when DSS tenants are involved because of the added risk and likelihood of rent arrears. However, some companies do provide cover, but with a noticeable premium. Much like how most motor insurance companies put a premium on insuring young male drivers because they’re more likely to have an accident and claim.
Personally, in this situation, I believe the premium is usually worth paying for.
From my experience, most landlords don’t get RGI, and it’s usually because of the following reasons:
- They can’t get covered. Be warned, some insurers will NOT offer you cover simply because you don’t meet their requirements e.g. If you haven’t done efficient tenant referencing, including credit checks.
- They don’t want to pay extra for it
- They don’t know about the policy
- They’re willing to take a chance without
- They have good tenants
- Covers 100% of rental payments up to £50,000
- Covers legal expenses up to £50,000
- 50% of rent paid for 2 months after the tenant is evicted
- Rent Protection product is transferable to new tenants
- No excess to pay
- Legal costs relating to eviction (up to £25,000)
- No restriction on tenant type
- Options for 6 or 12 months’ cover
- Maximum Rental Amount per month is £10,000
- No excess to pay
- Maximum of £25,000 per claim
- Options for 6 or 12 months’ cover
- Maximum Rental Amount per month is £3,000
- No excess to pay
- Maximum Rent payable per Claim is £15,000 or the equivalent of six months Rent, whichever is the lesser amount.
- Legal costs relating to eviction (up to £50,000)
- 24 hour legal advice helpline
- Maximum Rental Amount per month is £2,500
- Excess equivalent to one month’s rent
But on the other hand, I know many landlords that do (and an increasing amount of landlords are catching on), and they thoroughly endorse the policy because it takes stress away. I guess it boils down to the individual landlord and how safe/protected they want to feel. Much like how some home-owners don’t have burglar alarms, while others don’t feel safe without one.
Assess your needs, base your decision on your circumstances and do what makes you feel most comfortable.
So how much does it cost?
I’m assuming this will be the decision maker. It’s always about the money, right?
Like all insurance policies, RGI will vary on the amount of cover you require, and in this specific case, the individual circumstances of your tenancy. However, I don’t want to walk away without giving you a ballpark figure, so let me give you an example of how much I paid, along with the circumstances of my policy.
I paid approximately £110 for a 12 months RGI policy, which covered a 2 bedroom house (I don’t think that’s actually relevant), occupied by a single working parent. In the grand scheme of things, it’s relatively inexpensive, especially when you consider what you get for it.
Needless to say, it’s well worth shopping around for the best deals; it’s becoming an extremely competitive market. A good starting point might be the list of insurers at the bottom of this page…
The time I made a claim
Yes, I have made a claim before and I quickly want to discuss the process, so you get a feel for how it works- or at least, how it worked for me.
I had to evict a tenant after she fell into arrears. She defaulted on 2 months worth of rent, which cost me a little over £1.5k. That’s a lot of money; more than I was willing to part with. If you’re interested, you can read about the gory details in the following blog entry, I’m Evicting My Tenant.
Fortunately, I had taken out a RGI policy with a company called Homelet. I notified them of my dilemma and in turn I had to fill a claims form, specifying all the details.
Approximately 3-4 weeks later I received a cheque for just over £900 from Homelet. So what happened to the rest of the £600? Ok, good question. Just like some car insurance policies, when you make a claim you may have to pay a excess fee- mine was £600. Of course, you can find policies with smaller or even nil excess fees (I was never aware at the time)!
In any case, overall, £900 was much better than losing out all together.
Insurers that offer RGI
By all means this isn’t a complete list of companies that offer RGI, and there are various packages available by each insurer- I’ve only provided details of similar products for comparison purposes.
|Rent Guarantee Insurance Companies||Price||Details|
If you know of any other companies that aren’t currently listed (but should be), please contact me or leave a comment below.
Inform your insurer of any changes of circumstance
I’m assuming this is stating the obvious, but it’s so important that I’m going to say it anyways.
Insurers are notorious for finding ways to withhold from paying out when a claim is filed. If they can find a reason not to pay out, they will, so it’s in your best interest not to give them one.
If there’s ever a change in circumstance regarding your tenants (e.g. one of them becomes unemployed, or you get new tenants), inform your insurer immediately so they can update your policy. If you don’t update your policy by informing your insurer, or at least enquiry whether you need to or not, you may find yourself with an invalid policy.