Why you should be using it and what to look out for.
Rent Guarantee Insurance or Rent Protection insurance has become more prominent in recent times, with COVID-19 potentially impacting a tenant’s income and therefore their ability to pay rent. With the Government’s announcement that evictions will not be enforced until at least 21st February 2021* it’s more important than ever to have rent protection in place.
So what exactly is it?
If you don’t know already, Rent Guarantee Insurance (RGI) is a way to protect your business and landlords. It is an insurance policy that covers against non-payment of rent as well as supplying legal help and covering the costs involved in the eviction process. If your tenants are unable to pay their rent for any reason, this is where RGI comes in.
Like all insurance, you pay for it with the hope you never need to use it! Unfortunately in the current conditions claims rates are higher than ever before.
There are many different policies on the market. Some cover individuals, others cover the property & rental amount as a whole. The latter is a much simpler (and normally cheaper option). Rent guarantee will cover the rent where your tenants default on their payments. Policy lengths are usually for six or 12 months (depending on the length on the tenancy) and can be renewed year on year if needed. Some policies may have conditions and exclusions depending on the provider, which could mean that you aren’t able to claim for the six/12 months missed rent.
For example, some policies need to have had rent guarantee in place previously if you are wanting to make a claim straight away. If it’s the first time a policy has been put in place, there may be an exclusion period from the policy start date, before you can make a claim. A cap can also be applied to the number of missed monthly payments it will cover, for example, four or five months – or until the contract ends and the tenant is evicted, whichever comes first.
It is important to read these conditions and exclusions carefully before making a decision on which policy you go for, to ensure that you aren’t caught out when it comes to making a claim.
Why is it so important?
When COVID-19 hit, a lot of providers pulled their products from the market or excluded COVID-19 from their policies. This left a lot of agents and their landlords ‘in the lurch’ when it came to tenants missing payments.
Having rent guarantee insurance in place will give you and your landlords peace of mind, especially in the current climate. Along with protecting your rental income, it can also support with legal fees – for example, our Rent Guarantee Policy will cover up to £100,000 in legal expenses.
We have seen a HUGE uptake in the number of agents using Rent Guarantee Insurance and a decisive change in how it is offered to their landlords.
The level of trust between landlords and their letting agents has been thoroughly tested these past few months. It comes as no surprise that landlords are wanting assurances from their agents that they will be protected and will have that security when it comes to their rental income, so for those that have been using RGI products intermittently, or not at all – the demand has never been higher! Including rent guarantee in the most basic packages offered to your landlords should become standard procedure, so that you can easily improve the services you offer as well as your relationship with your landlords.
Offering rent guarantee insurance could be the deciding factor for landlords choosing whether to leave the market and having the confidence to stay, with the assurance that their rental income is protected.
What you should look for when buying a Rent Guarantee Policy?
So we’ve covered what it is, and why it’s important. Now, what should you look for in a Rent Guarantee Policy? Here are a few pointers;
1. Nil excess
A lot of policies that have come back to the market have added an excess because of COVID-19. This can have a negative impact on you and your landlords, as the excess is usually the equivalent of 1 month’s rent. So look for a product with no excess..
2. Legal implications
Check what kind of cover you will be getting in terms of legal expenses. With all the changes in legislation recently, it has all gotten a little confusing. So make sure that the whole legal process is being taken care of by the insurance provider. This means you relax a little once the claim has been accepted, knowing that the legal process will be fulfilled and managed by that provider.
3. Amount of coverage offered
There have also been changes to the amount of coverage that is paid out. Make sure to check how many months of missed rent the policy will payout for.
4. Is rent recovered as part of the process?
Some policies won’t look to recover rent from the tenant. Landlords understandably will want to hold the tenants accountable, and you want your tenants to understand their liability against the tenancy agreement they have signed.
5. Added extras
Are there any added extras that come with or can be added to the policy? This can include things like property damage cover, or payment after vacant possession. There are policies out there that will pay out up to 75% of the rent 2 months after vacant possession is obtained. This can be very beneficial to landlords who may be experiencing longer void periods in the current climate.
6. Policy wording – make sure you understand it
Very important – make sure you understand the policy itself and the benefits. If you understand it, you will feel more confident when explaining it to your landlords. You will also be able to understand the effect that it has on your customers. It can be very boring, but with it in the long run!
If you have tenants who are struggling to pay their rent, have a read of this blog from our partners at Goodlord for some different ways to manage the scenario, from assessing your tenants’ financial situation to coming up with payment plans (free templates included).
If you would like to know more about Rent Guarantee and the services we offer, you can get in touch here
*Information correct at time of writing. For more information, please see www.gov.uk