Guaranteed Rent Insurance

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What is Guaranteed Rent Insurance?

While death and taxes continue to top the list of life’s certainties, insurance has muscled up the ladder of priorities in this often confusing, definitely expensive modern world. Whilst coverage for life, health, and car is eminently obvious, there is a broad spectrum of policy types whose virtues are not always apparent - until one runs into a situation where having said coverage would alleviate a great deal of financial suffering.

One such policy is called Guaranteed Rent Insurance, which would seem like winning the lottery for some tenants, except this particular insurance is primarily for Landlords.

In simple terms, should a renter not fulfill his contracted monthly obligations, ie. pay his rent, the landlord simply calls his insurance agent instead of the bailiff. Most of the policies advertised on the Internet touted up to £10,000 of unpaid rent and up to £25,000 of legal expenses should the relationship between landlord and leasehold go sour. This type of policy is available for only a few pence over £2 a week, however, as with other types of policies, greater payouts will require a better policy. According to the Association of Residential Listing Agents (ARLA) the average cost for Guaranteed Rent Insurance runs about 3-4 % of the rental income per year.

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Why is Guaranteed Rent Insurance required?

Guaranteed Rent Insurance is not required by law, but in certain circumstances - for example, having to pay a mortgage on a rental property - knowing that the rent will be paid can save a fair amount of stress. Actually, companies offering this insurance ask for information that should be normal practice for any landlord. First there are two forms of identification, including one with a photograph.

Next is proof of employment, then a credit check, and full tenant reference by a licensed agency approved by the insurer. Some tenants might require a guarantor, in which case the same applies to this person. Before the tenant takes possession, they must sign an Assured Shorthold Tenancy Agreement, readily available on the web, provide one month’s advance rent, and a deposit against damage by either them or an invited guest.

All of these steps are required to qualify for the insurance, as well as keeping strict written records of all rent due and that which has been paid.

Given that this should be done anyway, what value is there to having this insurance?

What are the benefits of Guaranteed Rent Insurance?

Basically, the primary benefit is peace of mind. If that’s worth 3-4% of your rental income, then this policy is a must. Even renters who have been well-qualified in advance get sick or have accidents and cannot work (as well as the family upheaval of divorce or other personal problems). On the other side of the coin, when the building is damaged by storm or other unforeseen problems, landlords often have to make other arrangements for their tenants. The exact coverage varies, and broader coverage costs more, but we do live in a complicated world.

What does it cover?

Should a tenant continue to occupy a leased dwelling and not pay rent, the insurance kicks in (after the first month which is covered by the deposit) and pays the rent for usually up to twelve months, or until the Private Rental Tenancies Board (PRTB) hearing. The insurer then pays one month after the hearing to allow for any repairs on the rental and the time it takes to relet. Appearing before the PRTB may or may not require legal counsel. In such cases, however, and depending on the exact coverage, the aforementioned insurance may be required. Also covered is damage to the property and the removal of squatters.

In cases where a tenant leaves without giving proper notice, the insurance covers the second and third month of no rent, (the first, again, being covered by the deposit). These are the basics, and given the nature of real estate, public liability, natural disaster, etc., the various and sundry permutations are extensive.

Guaranteed Rent Insurance is not mandatory, however, when purchased it should be from an agent that is authorised by the Financial Services Authority (FSA), or, directly regulated by a broker registered with the FSA. Perhaps the most telling argument in favor of this insurance is the simple fact that the landlord is no longer alone in facing the legion of potential renters and the legal system, which many landlords feel is predisposed against them.

Most insurers of this kind offer 24-hour legal advice by telephone. In situations where landlords find themselves in dispute with their insurance carrier, contacting either FSA or ARLA is recommended.