Rent guarantee insurance, or tenant default insurance, is a well-known type of cover you can add to your landlord’s policy. It helps protect landlords against financial loss if the tenants cannot or are unwilling to make rent payments. This landlord insurance reimburses the policyholder for lost income when a tenant defaults on rent payments.
Rent guarantee insurance pays the rent monthly for a fixed time if the tenant does not make payments. To underwrite this policy, the insurance company looks into the landlord’s creditworthiness and financial stability. With rent guarantee insurance, policyholders can shield their investment from disruption due to unpaid rent.
Some insurers offer this coverage directly to tenants to help them pay the landlords on their behalf to avoid eviction. However, this coverage is mostly used by landlords seeking the repossession of their property. Just like PMI (private mortgage insurance), rent guarantee insurance offers more protection to the landlord than the tenant.
How Does it Work?
Just like I have mentioned above, this coverage protects landlords when the tenants fail to make the rent payments. In certain cases, it might also pay for legal fees and other costs associated with the tenant eviction process. After the fixed waiting period in which the tenant refuses to pay the rent, this guarantee insurance will start to cover the rent up to the coverage limits in the policy. Just so you know, the timeline for the claims will mainly depend on the contract. But, generally, the coverage kicks in for about 30 days when the tenant fails to make a payment for the period.
However, know that the policy might set the payments it may cover. For example, it may be just six months worth of rent. This policy may also have requirements for the tenants themselves and the leasing agreements. For instance, the rent amount might have to meet certain maximums and minimums. The lease term might have to be a certain length of time, and the tenant may have a good eviction and payment history. And the property might have to be the tenant’s primary residence.
For landlords that rent out various properties, they will need a separate rent guarantee insurance policy for every home under a lease agreement. The insurer may ask the landlord to purchase coverage for every unit in a multi-unit property. Rent guarantee insurance covers various reasons tenants may fail to pay their rent. This includes losing jobs, divorce, being faced with medical bills, and more. Some policies even offer coverage if the tenant no longer chooses to live at the property. Or generally fail to make payments for rent on time. The landlords should discuss specifics about the policy with the insurance company or agent.
What Does Rent Guarantee Insurance not cover?
Rent guarantee insurance may protect against rent arrears. But you should know that it won’t help with damages done to properties, including damage from negligent tenants and natural disasters. You may need to add a separate policy to cover this. A landlord property insurance policy, also known as a dwelling fire policy, covers perils like lightning, fire, theft, vandalism, and hail.
It is very important to know that property insurance for rental units might provide coverage for lost rental income. If a covered peril makes the place unrentable and uninhabitable, Just so you know, if a tenant has a history of evictions and is currently behind on payments, The landlord may not be eligible for coverage for this tenant or the unit he or she is living in.
Rent Guarantee Insurance cost
The cost of your landlord’s rent insurance depends on various factors. And some of these can greatly affect the price of this cover. These factors include the type of property, location, insurer, and types of tenants you are renting to; the level of rental income; how much you are willing to pay towards a claim; and how comprehensive your policy is.
Who needs Rent Guarantee Insurance?
Although various screening tools can help landlords choose tenants who can pay rent on time, they cannot foresee significant changes in tenant lives that may cause financial challenges. Nevertheless, landlords who rely on rental income to pay off taxes, mortgages, savings, and other expenses may benefit from this rent guarantee insurance as a good financial help.
How to Purchase a Coverage
If you are a landlord, you cannot purchase this coverage alone. You will need it to add it to your standard landlord insurance. This means you must have already purchased the landlord’s insurance. If you have not purchased this policy, you can find quotes online or contact your insurer. Many insurance websites offer quotes to people on their websites.
After purchasing the landlord insurance, you can then add any extra rent protection policy you wish to add. However, you should read the terms and conditions of the add-on policy to make sure you get the right level of coverage that matches your needs.