Landlord Rent Guarantee Insurance (RGI) can be a life-saver for landlords that end up with tenants that fall into rent arrears. Unfortunately, a terribly common scenario these days.
One of the biggest problems of being a landlord is that it’s virtually impossible to find a tenant that is guaranteed to always pay rent on time every month.
Even tenants with the best intentions can experience a change in circumstances (often through no fault of their own), which results in rent arrears. That’s when RGI can be so incredibly useful and important, and why so many landlords consider it an essential insurance policy.
So, should you get Landlord Rent Guarantee Insurance (RGI)?
What is Landlord Rent Guarantee Insurance (RGI)?
Rent Guarantee Insurance (RGI) protects landlords against loss of rent. It’s also known as Legal Expenses & Rent Guarantee Insurance (LERG)
The insurance policy is most commonly relied upon when tenants fall into arrears and are unable to pay rent, or simply refuse to pay rent (for whatever reason). If that happens, you can reclaim the money through the insurance company (or at least a percentage of it, depending on the terms of your policy).
Most policies also provide legal expense coverage. For example, if you’re dealing with a tenant that falls into arrears and refuses to vacate, legal expenses to evict the tenant incur, especially if the matter escalates to court and bailiffs are required.
The extent of how much a policy will cover will naturally depend on the type of policy you acquire. However, the following is generally included with most RGI policies:
- Rental payment cover (minus an excess fee, like most claims)
- 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
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?
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) and Landlord Building Insurance (although you’d be stupid not to have building insurance, that’s the only type of landlord insurance I consider to be absolutely necessary).
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 new tenants is that we don’t really know how reliable they’re be until they’ve proven their reliability, and that can take months. In the mean time, we kind of just hope and pray that we did a thorough job referencing them properly, minmising our risks.
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 current picture, and not the 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 the 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 with a new tenant.
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 it’s a particular toxic situation where court action is a possibility.
If you’re one of those landlords that heavily rely on mortgage payments to stay afloat, 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!
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 though, 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 conducted efficient tenant referencing and 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
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.
The time I made a an Insurance claim for Rent Arrears
Okay, so I just covered when and why RGI can be so utterly useful, so perhaps the next and most logical thing to discuss is the time when RGI proved to be invaluable for me. Or at least, worth £900.
Yes, I have made a claim before so I quickly want to discuss the process with you, so you get a feel for how it typically works.
I had to evict a tenant after she fell into arrears.
God, I still hate her to do this day. She was a real nasty piece of work. But I digress.
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.
I HATE HER SO MUCH!
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.
Once my tenant fell into arrears, I notified them of my dilemma, which resulted in filling a claim, which entailed 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?
Good question! Just like some car insurance policies, when you make a claim you may have to pay a excess fee. Mine was a whooping £600. Of course, you can find policies with smaller or even nil excess fees. Admittedly, I was never aware of that at the time. Lesson learned!. I always get policies with little to no excess fees now. I actually do the same with my car insurance.
Excess fees, something for you to be aware of, for sure.
In any case, £900 was much better than losing the whole lot.
Do I qualify for RGI? Can any Landlord get Rent Guarantee Insurance?
There are usually a few requirements that must be met in order to be eligible for RGI:
- A written tenancy agreement.
- Tenants must have passed tenant referencing (e.g. no adverse credit). If a tenant fails referencing, then RGI may still be available if they can provide a qualified guarantor.
On a sidenote, if you’re interested in RGI (which I’m guessing you are, since you’re here), I recommend looking into the requirements of your preferred RGI provider before finding new tenants, because some providers will have specific requirements in regards to the type of referencing you conduct.
How much does Landlord Rent Guarantee Insurance 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 in return.
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 lower down this page. Coming soon!
Landlord Rent Guarantee Insurance (RGI) Companies
By all means this isn’t a complete list of companies that offer RGI to landlords, however, they are highly rated and reputable suppliers.
Notem, there are various packages available by each provider, so I’ve only provided details of similar products from each provider for comparison purposes.
Is this possibly the best protection for Landlords against Rent Arrears?
I was recently introduced to a ‘sort of’ RGI product that’s recently been launched by the online letting agent LettingAProperty.com (an awesome little company I’ve been working with for several years).
Actually, it’s not really an RGI product at all, but more so a complete landlord rent collection solution which includes a ‘type of’ RGI policy (among a butt-load of other gadgets).
I say a “type of” RGI, because it’s a little bit different to how the conventional RGI policy works. Normally, you have to make a claim if your tenant falls into arrears, and then go through a process which results in a payout, which hopefully isn’t too far down the line (if you have a valid case, of course). Just like any normal insurance claim.
But with the RGI policy offered by LettingAProperty you benefit from a “rent on time” policy, which basically means you get paid rent on time even if your tenant doesn’t pay! You don’t have to go through any claims process, you simply just get paid on the date you’re contracted to get paid. See the difference?
Yes, it’s more expensive than regular RGI policies, but you’re getting so much more. Anyways, I think it’s a pretty awesome product, so I thought I’d throw some light on it, because it’s kind of a hidden gem…
|Provider||Contract||Notes / Includes||Price|
Letting A Property||
Month by month
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"Rent on Time" Package: solution for Rent Collection & Guaranteed Rent, Home Emergency Cover and Legal Cover!
*Landlord pays £149 upfront, and then £89 per month.
*£149 one-off + £89pmInc VAT
Quick update: LettingAProperty stumbled across this article and threw an exclusive £40 discount my/our way! Enjoy.
Please note, I try my best to keep the information of each agent up-to-date, but you should read the T&C’s from the agents’ website for the most up-to-date information.
If you know of any other companies that aren’t currently listed (but should be), please contact me or leave a comment below.
Word of warning: inform your insurer of any changes in circumstance
Just a quick final warning before I drive off into the sunset.
Insurers are notorious for finding ways to withhold from paying out when a claim is filed. Needless to say, if they can find a reason not to pay out – no matter how trivial – they will! So it’s in your best interest not to give them one.
If there’s ever a change in circumstance regarding your tenant (e.g. if he becomes unemployed, or if you change tenants altogether), inform your insurer immediately so they can update your record and make any appropriate changes to 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.
Brother, you’ve been warned!
All-in-all, RGI is a wonderful product.
Disclaimer: I'm just a simple landlord blogger; I'm not qualified to give legal or financial advice. Any information I share is my opinion based on my personal experiences as an active landlord, and should never be contrued as legal or professional advice. For more information, please read my full disclaimer.