Rent Guarantee Insurance For Landlords: Insurance From Rent Defaults
No matter how diligently you perform background checks on your tenants. There is always a risk of rent default by a tenant. Not getting paid is every landlord’s worst nightmare, especially for those who have mortgage payments to send every month. Imagine your chances of making payments where you are solely dependent on your rental business? Even worse, what if the rent default lingers on for a few months? The answer to your problem is the Rent Guarantee Insurance.
Rent Guarantee Insurance is an insurance product that protects the landlords in events of tenants defaulting the rent payments. This Insurance covers the landlord from having rent arrears and for any legal costs incurred in getting the possession of your property back from the tenant.
How Does Rent Guarantee Insurance Works?
A Rent Guarantee Insurance is an optional but valuable policy for landlords. When you purchase this Insurance, you can claim for unpaid rent for a maximum of up to six months or twelve months depending upon your insurance company.
In case the tenant defaults or falls behind the rent payment, your Rent Guarantee Insurance Policy comes very handily. Your insurer will pay you monthly rents plus any legal costs until the tenant vacates the property completely or you successfully evicts that tenant. However, all these benefits are capped for a certain duration of either six months or max twelve months only.
Is Rent Guarantee Insurance Worth It?
It is always better to have maximum protection for your business. And having a rent guarantee insurance should definitely be a part of your plan. But many landlords argue on having lots of different types of policies as it quickly adds up to the expense list.
And, if you are having only a few or just one rental property up in your alley, or having just little room in your cash flow game. Then, it becomes really hard for a landlord to have extra optional coverage. So in that sense, should you really get the rent guarantee insurance?
Not having Rent Guarantee Insurance, you are only worsening the game for yourself. Imagine yourself not getting paid for a few months. It is not always the case that it is only the bad tenants that tend to skip payments. You must have done your background check and referencing pretty well. But your tenant can suffer a job loss, or maybe, he is going through a divorce, or even got a solid job offer out of state and breaks the lease in between.
Anything can go wrong and the trouble you can experience by not getting paid is not worth it. Better you get the rent guarantee insurance and have that good night sleep always. After all, this insurance is not that costly. For mom and pop landlords who don’t have bigger cash reserves, this kind of insurance is a very good insurance product.
How Much Rent Guarantee Insurance Costs?
The cost of Rent Guarantee Insurance is variable and depends upon the coverage you choose. You can choose from either to be covered from rent default for up to three months, six months or twelve months. The amount of legal coverage you want. What Rent you are charging from tenants? And whether you will pay your premium on a monthly basis or an annual basis.
All these factors contribute to the cost of your Rent Guarantee Insurance Policy. In a glimpse, a three-month reimbursement coverage from Rent Guarantee Insurance when you rent below $3000/ month costs about $300 annually with $1000 in legal cover.
Insurance Company Rent Rescue Avail Norada Real Estate
Rental Income Coverage
Up to 6 Months (Default Due to Abandonment or Eviction)
Up to 3 Months (Default Due to Military or Court Orders, Tenant`s Death)
6 Weeks Up to 6 Months 1.5 Months Up to 6 Months
Legal Cover $1000 Not available Not available
Deductible One Month`s Rent ---- No Deductible (Rent Credits are Adjusted in Reimbursement)
Waiting Period 21 Days No Such Requirement No Such Requirement
Annual Cost (Approx For Three Months Coverage) $300 $349 $240
How Do You Qualify For Rent Guarantee Insurance?
No, not every landlord qualifies for rent guarantee insurance. These insurance companies have certain criteria on whose application gets accepted. So if you are looking to apply for a Rent Guarantee Insurance, here is what you should know.
- You must have a minimum of six months of lease remaining with the tenant.
- The rent should not be in arrears already when the policy is purchased.
- You must be able to provide the details of how you have verified the tenant.
- The tenant should have had no bankruptcies and evictions in the last 5 years.
- Tenants must be able to satisfy the financial terms of Lease.
- The Tenant should have a minimum credit score of 580 and have the income 2.5 times the rent at your rental property.
Though all the insurance companies providing this kind of coverage can have their own requirements and way of making due diligence. But the above requirements broadly satisfy the qualification you must meet to buy the rent guarantee insurance.
How Do You Make a Claim on Your Rent Guarantee Insurance Policy?
You can make a claim on your rent guarantee insurance policy from the same date the rent comes in arrears. When the rent becomes due and the tenant is unable to pay, simply contact your insurance company and file a claim. Generally, the insurance companies can take anywhere between 30-60 days to process your claim.
During the time, you are required to furnish the Pay or Vacate Notice (Notice To Comply) to your tenant. And if the tenant still does not pay within the notice deadline. You can request the insurer to process the claim by paying the deductible.
Your insurer, say, took 30 days in processing the claim. Then you will start receiving the monthly rent reimbursement after one month of filing the claim till a certain duration under the policy. Additionally, you will also get legal coverage if your policy covers it.
Documents Required to File The Claim
The insurer of the Rent Guarantee Insurance Policy wants to be sure that you have taken all the remedies legally available under the law for the remedy of non-payment. And whether you are fulfilling all the requirements for qualifying for the reimbursement from the policy. So, at the time of claim, you are required to submit
- Copy of Your Lease Agreement in Force
- Evidence of the Pre Background Check On the Tenant before signing the lease
- Copy of the Pay Or Vacate Notice
- Valid Receipts for any Legal Expenses Incurred
- Documents Supporting legal proceedings if any
Do You Know?
About 70% Lease Agreements that are made are only actually enforceable. The others simply don’t comply with the state laws and become unenforceable and void. Hence, it is better for you to go for a state specific and an attorney reviewed lease always.
Can Rent Guarantee Insurance Covers Multiple Rental Properties at a time?
The Rent Guarantee Insurance doesn’t cover multiple rental properties at the same time. You are required to buy the policy separately for each rental property. However, if you have a multi-unit rental property, you can insure a maximum of up to 4 units simultaneously on one policy by listing all the tenants.
However, every insurer is different and you must check the same with the insurance company. Some insurance companies want you to buy every policy separately for each lease agreement at your rental property.
The Bottom Line
Being a landlord is no easy job especially if you are new to this business or at initial steps of making very little from this business. It is better that you diversify the risk in your business with Rent Guarantee Insurance and stops worrying about not getting paid.
Even better, you have one more reason to smile while paying the premium for this insurance. The Rent Guarantee Insurance Premium is completely tax-deductible. And still, if you feel it is a burden, your tenants wouldn’t mind sharing the load by paying a little 1%-2% extra in rent to keep their landlord risk free from defaults.
What Other Types of Insurance You Should Consider As A Landlord?
1. Landlord Insurance Policy:
A Landlord Insurance Policy reimburses the landlord in case of the damage to the structure of the rental property from Perils. And, for the case, if any liability arises from the damage to the rental property. It further covers the landlord for the contents used to service the tenants in the rental property.
2. Umbrella Policy
An Umbrella Policy provides additional coverage to the landlord and it is bought along with the landlord insurance policy. The Umbrella policy comes handy when the liability coverage in your primary policy gets exhausted.
3. Renter`s Insurance
A Renter`s Insurance is a special policy made for tenants. This insurance policy protects the tenants in case of the damage to their contents and keeps the landlord free from liabilities.