LANDLORDS often ask me whether they need Rent Guarantee Insurance. I always say the same thing, it’s down to your own personal appetitie to risk. But would I ever buy it? The answer is no and never – and that’s coming from an insurance broker!
Rent Guarantee Insurance is a great idea. You pay for a policy that pays out the rent you are due if the tenant ever defaults. If it was that simple I’d buy it and recommend it to everyone that is a landlord. But alas, it is not that simple.
In reality your tenant has to go through a tenant referencing process. This is quite arduous and will look at everything from credit history to employment status. That means if your tenant has had any sort of blip in the past they will be refused cover.
If the tenant is receiving benefits then chances are you will be refused Rent Guarantee Insurance.
On the other hand, if the tenant has a long history of good credit worthiness and is in full time permanent employment, then they will easily get Rent Guarantee Insurance approval.
The fact is Rent Guarantee Insurance appears to only back winning horses. It will insure people who have a great credit history, are employed and chances of ever defaulting are minimal.
In my view you don’t need insurance for these people, they are safe bets. You need Rent Guarantee Insurance for those who may actually default. The Housing Benefit recipients, the DSS supported, the unemployed and students. These groups are more likely to default so I want my insurance to cover them, but of course it doesn’t.
That’s why I don’t buy it. What’s the point? I’ll pay £120 per year for a product that only covers the safe bets. When I need it for the risky tenants it simply will not offer me cover. I’d pay more for a product that did cover these tenants but the insurers are not interested because they may lose money, so continue to insure the safe bets, collect your money and drink artisan wine.
This really is the only insurance product I think needs a complete rethink. It’s not a PPI scandal but it is not providing the cover I think it should. Of course, if you are completely risk averse you will buy it anyway and in the unlikely event your excellent tenant defaults you will be paid – probably with a month’s excess to pay yourself first.
I hope this helps.