Rent Arrears Insurance
“It feels so unjust. You own a property, you let it to someone on the promise of a fair rent, and they don’t pay up. More often than not, you will have a mortgage to pay, and the lender expects its monthly instalments. It feels like the property owner takes all the risks. Surely my insurance broker will be able to find a way to mitigate the risk of arrears with insurance.”
This is a common plea, and help is at hand. Rent Guarantee Insurance helps to redress the balance in favour of the property owner. In addition to replacing your lost income, the insurance company will bring all of its experience and organisational skills into securing the eviction of the errant tenant.
This kind of insurance for landlords has grown in popularity as the recession has bitten. Rent arrears can come from professionals fallen on hard times, divorced couples, people claiming benefits and trades-people struggling to find enough work. I don’t think that people take on a property with the intention of getting into arrears – well not many people anyway. The problem is that the people who actually own the properties – the landlords – have a right to collect rent.
It is very rare for a landlord to own a property and not actually need the rent. The boom in “buy to let” mortgages has meant that many very normal people have become landlords. These people need their rental income to pay their mortgage and avoid the banks repossessing the property from them. That’s why they are willing to spend a proportion of their rental income on insurance.
There are two key facets of the insurance taken out. First, property owners insure against the lost income from their tenants going into arrears. For a premium, the insurance company will pay the rent if the tenant does not. Some insurers will ask for credit checks to be performed, some will not. Some will insure you even if the tenant is claiming benefits, but many won’t, so take care to buy the right policy.
Secondly, the insurance company will often help you to secure an eviction if your tenant simply can’t keep up. This is very helpful, and you should make sure you have this cover with your insurances. Most landlords do not have the time or the skills to succeed in this minefield. If you are a landlord/property owner, your insurance broker will be able to advise you on the correct insurance for your property.
Bob Darling is a Director of Coversure Insurance Services.
