I frequently get asked by landlords if rent protection insurance is worth purchasing or not. The answer to this question is entirely personal to your circumstances as a landlord and your attitude towards risk.
Even the best of tenants can find themselves in circumstances where they are behind on rent, and as a landlord myself, I understand the frustration it can cause. Without cover, it can be a costly situation to be in and that’s without mentioning potential property damages. However, if you pay out for insurance and never need to make a claim, you’ve eaten into your costs and potential profit.
Here are the key points to consider when looking for rent protection insurance to help you decide if it’s worth it for you:
What’s included in the insurance cover?
Of course, the number one thing all policies will cover is unpaid rent owed to a landlord when a tenant finds themselves in arrears.
With so many insurance products available, it’s vital to do your research. I would endorse policies that include features such as legal expenses cover, eviction services and offer nil excess. In addition, I always recommend policies that offer some level of rent coverage once a tenant has been evicted.
From my experience working in the letting industry for the past decade, the entire eviction process takes an average of 4 months to complete, so having an insurance policy in place to cover your costs during that time can be hugely beneficial.
Making a claim – how it works
First thing’s first, rent protection insurance is purchased in anticipation of rent arrears arising, not when your tenant is already behind on rent. With most policies, you will not be able to make a claim within 90 days of setting up the policy.
Even once you can make a claim, a lot of policies will only allow you to do so once the tenant is one month in arrears. You will have to wait this time, as well as the time it takes your insurers to accept your claim, before you see any cover costs transferred to you.
Be wary of the small print
You need to make sure the policy you’re buying doesn’t have any hidden requirements that could trip you up when you need to make a claim. Be sure to examine the small print to ensure you fit the eligibility criteria for the policy.
While you will need to wait until your tenant is already one month behind rent, don’t take too long. There’s normally a statute of limitation to notify your policy holder that your tenant is in arrears, so be sure to know how late you can leave it to make a claim.
Insurers will require proof that you’ve conducted reference and credit checks, a valid tenancy agreement and proof that the tenant’s deposit is protected correctly. This is a lot easier if you employ a letting agent as they will be able to supply all these documents directly to the insurer for you.
While most insurers will require your tenants to be in full time employment, it’s worth checking for additional prerequisites for the type of tenant the policy covers, such as ensuring your property is the tenant’s primary residence.
Furthermore, some policies will require you to also have a valid landlord buildings insurance policy or accidental damage cover. These are the most common specifications, but there could be others, so be sure to inspect the policy and question anything you’re unsure of.
Should your letting agent offer you rent protection?
Having a letting agency manage your property doesn’t automatically mean you are covered. Since rent protection insurance is not a legal requirement, it’s your personal choice whether to purchase a policy or not.
Working with an agent does mean that you could have access to deals you may not be able to find on regular comparison sites, and as previously mentioned, will make your life simpler if and when you do need to make a claim.
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