Owning a rental property brings with it financial gains which can be difficult to make elsewhere - with the yield any buy to let provides often far outweighing returns found from traditional savings.
But what happens to that investment if a tenant stops paying their rent? How many landlords can afford to keep a property up and running should it stop paying for itself - however temporary that may be? Would you be able to cover the legal costs involved in recovering the loss of that rent, and any arrears an unscrupulous tenant may accrue in the process?
Loss of rent protection
Rent protection insurance can help you cover any financial losses should your tenants decide not to pay, leave without paying and even help pay for legal costs for you to recover that rent.
Loss of rent insurance is flexible, as you are able to buy on a short-term basis relevant to the length of tenancy agreed at the outset - for a six or 12-month period, for example.
Loss of rent insurance usually pays out a fixed amount per claim and often to a set maximum. You might be eligible to claim for up to £2000 per month up to a total of £24,000 in total, for example, or until a tenant is removed from a property either voluntarily or through eviction.
Landlords can usually access rent protection insurance payments after a tenant has been in arrears for a month or more to help with mortgage or other regular payments, which they otherwise might struggle to pay. You cannot, as a rule, make a claim within 90 days of taking out a policy, therefore it is important to consider whether you want to take this part of the cover out at an early stage. For many accidental landlords the thought of having to shoulder the extra financial burden of that second property could put them into debt. For some, loss of rent insurance will be at the top of any residential landlord's priority list.
How much your rent guarantee insurance policy costs will vary in line with the kind of tenants you have in place, the rate of rent you are able to charge, and the type of property you are looking to insure. Most policy providers also require written references from the tenants, a specific kind of tenancy agreement to be in place, the endorsement of a guarantor or other criteria to be met in order to claim. Knowing and complying with all the requirements set out by an insurance policy is therefore vital to ensure you are adequately covered when you need it the most.
Some rental protection policies also already include legal expenses cover, to help meet the cost of legal disputes involving the payment of rent, as well as ongoing charges which need to be met in the absence of rent being made. There is also often a limit to the total amount you can claim on legal cover, however, and you may only be eligible to hire a legal representative from a panel of firms specified by your insurer, so it’s always worth checking the small print first before taking out a policy.
For whatever reason, rental arrears can happen to the most rigorous of landlords, regardless of what checks are made and whether you are self-managing or using an agent for your property. Rent protection insurance helps you meet your own financial commitments, regardless of whether your tenants meet theirs.