Rent Loss and Rent Guarantee Insurance Explained

Rent policy cover should be considered if you are leasing out one of your properties to protect you from any threat that may affect your property. Below, we have provided a simple explanation on the types of cover options available.

Rent Loss Insurance Explained

Rent loss insurance refers to the loss of rental income or rental value due to property damage caused by an external hazard that leaves the property unsuitable for habitation.

Rent Guarantee Insurance Explained

Rent guarantee insrance is a type of insurance cover that protects landlords against the threat of losing rental income whereby the tenants default on their rental payments.

When a policy is taken out, a premium is paid which is approximately 3-5% of the total rental income received. There is usually an excess that will need to be paid on most claims. Some policies also offer cover for any expenses associated with eviction.

The majority of insurers will only let you obtain rental guarantee insurance once the tenant is comprehensively verified.

Why Is It Important To Take Out A Rent Insurance Policy?

If you have a mortgage on a property whereby the primary source of paying off the mortgage is from your rental income, it might be in your best interest to have ‘Rent Guarantee’ insurance. This policy protects you against the loss of rent from tenants that refuse or are unable to pay the rent as agreed in your rental contract.

Landlords should also consider taking out a ‘Rent Loss’ insurance on their property to protect the landlord against the threat of rent loss due to the property being left in an uninhabitable state from external hazards. Some policies can cover the landlord for up to six months if their property is subject to uninhabitable living conditions. Examples of potential causes include:

- Malicious damage
- Flooding
- Nuisances or Tresspassers
- Civil action events that cause damage to the property

Who Is Entitled To Apply For These Types Of Policies?

1.  An Individual

2.  Property Owning companies

3.  Property Management Companies

4.  Residents Associations

What Are Some Of The Factors That Affect the Price of Your Premiums?

Typical factors that would affect the premium for the rental insurance policies include:

Property location
The postcode for your property will affect the premium you pay based on the amount of risk that is associated with the area. (For example, flooding.)

Insurance sum
The premium amount for the property will be based on the rebuild cost associated with the structural rebuild cost of the property. Furthermore, other things to consider when insuring your property is whether your property is a part of  a block, conservatory area or a listed/heritage building.

Types of tenants
If the property is being used for sharing options such as a house share (HMO’s) or for those claiming Housing Benefits, the price of your premium will generally be higher.

Claims
If you as the landlord have a history in large or multiple insurance claims, the price of your premium will be affected.

Vacancy periods
How often is the property vacant within the area and for how long?

What Are Some Precautionary Measures That I Can Take Against My Property Whilst Letting It?

Some measures that landlords can take include:

  • Reference Checks – Check up on the references that are provided and find out about the credibility of your tenant and their tenancy history.
  • Sizeable deposit – Get a suitable deposit to cover for any loss of rent or damage to the property.
  • Payment facilities – Set up a payment account in the form of a direct debit.
  • Set expectations – Let your tenants know what you expect from them and the guidelines that they need to follow whilst they are letting out your property. Furthermore, let them know the consequences that they face if they fail to abide by the guidelines that have been stated.