Tenant Default Insurance
According to a report from Citizens Advice, half a million renters in the UK are in arrears, with around £360mn owed. These figures highlight the need for landlords to seriously consider covering their risk exposure through a tenant default insurance policy.
Loss of rent could mean that you can no longer afford to pay the costs of your property, whilst the legal fees incurred from taking your tenants to court will further increase your expenses. Here, we delve into tenant default insurance policies and why they could save you money in the long run. If you would like to read more information or learn more about the pricing of business landlord insurance, you can do so here.
What is Tenant Default Insurance?
A tenant default insurance policy, also commonly referred to as rent guarantee insurance, will provide you with financial protection should your tenant(s) fail to make their rent payments. Most policies will also cover the legal fees of taking action against tenants that refuse to pay or the cost of evictions.
Why Tenant Default Insurance is Beneficial:
You can be as careful as you like; there is never a guarantee that tenants will pay their rent. No number of pre-background checks will save you from losing rental income, so an insurance policy becomes an attractive proposition.
There’s a variety of reasons that can cause even the most diligent tenants to default on their payments. However, whatever the reason, an insurance policy will ensure that you can continue to cover the costs of your property.
Another benefit of taking out this policy is that it removes some of the pressure of being a landlord. Without an insurance policy, you can quickly feel alone as you try to battle for your money from multiple tenants at times, some of which might be going through a challenging period in their lives.
How do Tenant Default Insurance Policies Work?
Policies will cover you if your tenants stop making rent payments during their contract. You can take out a policy to cover typical tenancy agreements, such as 6 and 12 months. Some companies can even provide cover for more extended periods.
You should note that policies will differ between insurance companies, so some will include particular clauses and exemptions that you should be aware of. The way you get paid also depends between companies, with some taking up to 90 days to pay out if it’s the first time you’ve used tenant default insurance.
Another point worth mentioning is that there is usually an excess on these policies you agree to pay if you need to make a claim. A higher excess can help reduce your premium.
Are There Any Requirements to Get Tenant Default Insurance?
Typically, for your claim to be valid, the insurance company will need you to have references from suitable sources or a signed guarantor that will cover the rent if your tenant stops paying you. Some insurance companies might also require tenants to undergo a credit check.
You must adhere to the insurance provider’s requirements, as you could risk missing out on a payout.
How Much Does Tenant Default Insurance Cost?
The cost of your insurance will depend on various factors, such as the type of property, the value of rent payments, the level of coverage you want, and whether extras (such as legal fees) are included.
Getting in touch with a professional insurance provider will help you better understand a typical premium. However, for a one-year agreement without legal cover, you should be paying around £75.
Do you Need An Insurance Policy?
Dealing with tenants not paying their rent can be a stressful process. Some will be facing difficult situations, whilst others will only be looking to make things difficult for you. Getting a tenant default insurance policy will add an extra layer of protection that can reduce stress in an already stressful situation to be in.
Also, as shown by the current global climate, a pandemic can quickly change tenants’ circumstances, with many losing their jobs or seeing income reduced. To ensure you’re always prepared to face these challenges, it’s best to have some insurance cover.
Tips on taking out a tenant default insurance policy.
To ensure that you’re getting the best deal possible, request quotes from various companies to compare. Insurance firms can be flexible on prices, so testing the market is always a good idea. Also, not all insurance companies will provide the type of coverage you need, so make sure to check to avoid any nasty surprises later down the line.
Learn more about Landlord Insurance here.
Read more about Tenant Default Insurance here.
Other useful links about business insurance:
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