As a landlord, you need to protect your own finances and your investment by making sure the money is available to pay the mortgage if a tenant falls in to rent arrears.
Secondly, you need professional and effective legal advice to remove a tenant in arrears, so one who can pay their way can move in.
Landlord and tenant law is notoriously complicated and small mistakes can cost time and money
Rent guarantee insurance solves both problems.
What is rent guarantee insurance?
Rent guarantee insurance is a combination of two services for landlords –
- Legal advice and expenses cover to evict a tenant in rent arrears – the cover should also include dealing with breaches of the tenancy agreement and claims against the landlord
- Income protection insurance that pays out a sum each month so the landlord can continue to pay the mortgage if a tenant is not paying the rent
How does rent guarantee insurance work?
Your insurer will want a strict paperwork bundle before considering any application for cover that includes:
- A signed assured shorthold tenancy agreement in force
- Proof of tenancy deposit protection with an authorised scheme – and the deposit must cover at least one month’s rent
- Proof that any legal requirements in respect of letting have been carried out – like getting electrical and gas safety certificates.
- Tenants must be properly referenced before they move in – many rent guarantee policies will not pay out if a tenant is already in the property when the policy is set up.
Properly reference means running a credit check with one of the three agencies – Experian, Equifax or Callcredit
Some insurers will also want references from employers and previous landlords. Guarantors must be referenced as well.
Rent guarantee insurance will kick in after one month’s rent is missed to start legal proceedings to evict the tenant.
Most tenants who are in arrears will not leave until legal papers are served threatening to take them to court because they have nowhere to go.
They cannot rent another property because they will fail the referencing process and a local council will not house them because they are making themselves intentionally homeless.
Generally, the eviction process takes about three months and the rent guarantee cover will pay out to cover the rent and legal costs during that time.
Points to watch on rent guarantee cover
Rent guarantee cover is not standard between insurers, so shop around for the best deal.
- Levels of cover – You may want to set the amount paid to cover the mortgage and other bills rather than the profit element of the rent to reduce the cost of cover
- Term – Rent guarantee policies often last the length of the tenancy agreement, so if the tenant moves on to a rolling tenancy, check cover is still in place. The length of time the policy pays out can often vary – most should pay for at least six months
- Excess – Set the deposit paid by the tenant to at least cover the rent guarantee policy excess
- Legal expenses – Every lawyer has to follow the same eviction process, so do not pay over the odds for what is effectively the same service
- Bundle your cover – some insurers offer a comprehensive buildings/contents/rent guarantee package for landlords at a discount, and will consider dropping the price even further if you have more than one property to insure
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