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This is a question that we get asked frequently by landlords. The majority of landlords see this type of cover as an extra un-necessary expense that simply eats into their profits. The landlord has obtained glowing references for their tenants from the previous landlord & current employer so there does not seem to be any risk. Well, this is where they are wrong. Every credit check and reference under the sun can be obtained but this can only ever show the tenants past history. This is obviously all we can go by as [link widoczny dla zalogowanych] none of us have a crystal ball to see into the future but you only need to talk to other landlords or indeed watch the ‘Tenants From Hell' programmes on ITV [link widoczny dla zalogowanych] to realise that things can change at the drop of a hat. A tenant previously stated as a ‘model tenant' can turn your buy to let investment into a nightmare. A bad break-up with a partner or unexpected redundancy are a couple of common problems that cause a tenant of good repute to go ‘off the rails'. Think, if your tenant defaults on their rental payments for 2-3 months would you be happy to absorb this? Could you afford to fund the mortgage payments yourself? What if the tenant will not communicate with you or leave the property, you stand to loose thousands of pounds in lost rental [link widoczny dla zalogowanych] income and legal expenses incurred to fight the tenant and you should also take into account the time and stress involved.
There are generally two types of Rent Guarantee Insurance policies, Percentage Rated and Entry Level.
Percentage Rated
The majority of Rent Guarantee Insurance policies are charged at a certain percentage of your annual rental income. This is typically around [link widoczny dla zalogowanych] 4% plus Insurance Premium Tax (IPT) of 5% on the premium. A [link widoczny dla zalogowanych] landlord with a monthly rental income of ?800 per month would pay ?420 for this cover.
Entry Level
These policies are more basic and do not have all the [link widoczny dla zalogowanych] ‘bells and whistles' but are much cheaper. For around ?100-?150 per annum you can purchase an entry level policy that includes legal expenses cover and will pay you your rent arrears up to [link widoczny dla zalogowanych] a certain limit (typically ?2,500 per month) with a maximum indemnity limit for rent arrears of around ?10,000 per claim. These entry level policies are seen as [link widoczny dla zalogowanych] a more viable way of providing landlords with that extra protection for their buy to let investment. The costs are more justifiable and usually the cover provided is sufficient for the landlords needs.
What are the differences?
Typically the main difference between the policy charged on a percentage of rental income and the entry [link widoczny dla zalogowanych] level policy is when the rent arrears payments start and finish. The percentage policy may not have an excess period and may continue to pay rent arrears after the tenant has been evicted to assist while you search for a new tenant. These payments are normally made for up to 3 months after vacant possession is obtained and pay around 75-90% [link widoczny dla zalogowanych] of the normal rental income. The Entry level policies usually have a 1 month excess and will cease to pay rent arrears as soon as vacant possession has been obtained. You should carefully examine the ‘Summary of Cover' or ‘Key Facts' document for each policy to see where your money is going.
Both types of policy will generally require you to obtain references and carry out a credit check on your proposed tenant(s). 9 times out of 10 the [link widoczny dla zalogowanych] Rent Guarantee Insurance provider will be able to offer you a referencing service, usually via an approved third party. If you have not already arranged [link widoczny dla zalogowanych] a tenant reference or credit check, it makes sense to use the insurance providers approved service to assure you comply with the policy referencing requirements to avoid a claim being declined to due insufficient referencing.
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