Let’s face it: Rental income is the lifeblood of a rental property.
Yet, rent collection is one of the biggest concerns for landlords.
As a matter of fact, 84 percent of landlords say that rent payment problems are among their top concerns.
And rightfully so.
Without a consistent rental income stream, many problems are likely to occur. Among other things, you may become unable to service your mortgage or pay your property taxes.
Therefore, as a landlord, financial security isn’t something that you can afford to take for granted. With guaranteed rent, you will not only be able to maximize your ROI, but you will also get peace of mind.
Until now, you could only mitigate certain risks of non-payment.
You can finally guarantee rent with insurance against non payment of rent.
Insure. Guarantee. Protect.
The sweet lifeblood of your business (your rental income) will finally be safe.
In this article:
We’re going to cover the most common questions related to this new rental guarantee insurance policy.
By the time you read through this, you’ll know:
- What rent loss insurance is.
- How it works.
- What type of rental properties ir protects (coverage).
- What qualifications your tenants will have to meet.
- Why you should consider rent default insurance (the benefits).
- Why property managers offer rent protection policies to their clients.
[Rent Protection] What is Loss of Rent Insurance?
Just as the name implies, rent loss insurance is a risk management product that helps cushion landlords against rent losses in the event a tenant defaults on paying their rent.
What this means is that you will continue to be paid for a certain period of time after a tenant stops making rental payments.
The following are key things to keep in mind:
- Rent Guarantees will help cushion you against loss of rental income. Be it as a result of your tenant falling behind or simply defaulting on their rent payment obligation.
- You will usually be required to pay for the premiums, though it’s totally possible to require your tenant to pay for it instead, either by specifying it in the lease or by increasing the rent.
- To underwrite the policy, insurers will have to check and verify your tenant(s)’ creditworthiness and financial stability.
- Typically, you will receive direct payments just one month after your tenant defaults or falls behind in rent payments.
How Exactly Does Loss of Rent Coverage Work?
Every landlord dreads the thought of renting to a problem tenant. That is, one who fails to notify them of maintenance issues, rents short-term, causes negligent property damage or, even worse, refuses to pay rent.
But loss of rent coverage is here to help. The rent protection policy is originally from the United Kingdom.
Now there are rent guarantee companies who offer it in the USA. These policies ensure your income is protected against non payment of rent.
Essentially, the goal of Rental Guarantee Insurance is to protect you in the event your tenant defaults on rent payments.
As a property owner, you will need to insure against individual tenants or against a single property.
The resulting coverage will then offer protection against rent default issues and the dreaded, and often lengthy and expensive, eviction proceedings.
By safeguarding yourself with a rent protection policy, you will be able to have a complete peace of mind.
Implementing loss of rent coverage will have a ripple effect on your property investment portfolio.
For example, you will have the confidence to buy another investment rental property.
Does Rent Guarantee Insurance Cover all Types of Rental Properties?
Loss of rent insurance doesn’t cover all types of investment properties. And the reason for this is simple – different properties carry varying levels of risks.
So, what type of properties does the insurance policy cover?
Most policies cover single family homes, multi-family dwellings, townhomes and condo units.
If you deal with vacation rental homes or any other short-term investment property, this insurance isn’t for you.
What are the Main Benefits of Guaranteed Rent Insurance?
Most landlords screen their tenants prior to exchanging keys.
Screening procedures may involve checking and verifying a potential tenant’s ability to pay rent.
While this may be an effective tool in most cases, circumstances, however, do change.
Your tenant could become unable to fulfil their obligations due to various reasons. For example, due to a pandemic, an economic recession, a marital problem, or even a job transfer.
In any of these cases, the loss of rental income could have serious implications.
Especially if you rely on the rental income to fund crucial expenses like the mortgage.
That’s why more and more landlords are embracing the idea of rental income insurance coverage.
With rent guarantee insurance, you will continue to receive rental payments for a specific period of time, even if your tenant has stopped paying.
This will take away the constant worry and provide you an incentive to invest in a second rental property, a third, and so on.
Why Do Property Managers Offer Rent Protection Insurance to Their Rental Owner Clients?
If you’re a property manager, the reason is simple: You help your clients’ protect their rental income in case a tenant defaults.
Life happens, non payment of rent is a big risk for rental property investors.
If you can offer a unique service that makes your client’s life easier, you will set yourself apart from your competition.
Offering a unique product like rental guarantee insurance is one of many ways that you can be an excellent property manager and stand out.
The following are other reasons why property managers are helping with bringing it to the market.
- It Helps Cushion the Owner Against Rental Income Losses.
This is, without a doubt, the #1 reason why property owners are proposing it. If, for whatever reason a tenant stops paying rent, the rental income insurance will kick in and stop any loss of income for the owner.
- It Helps Property Managers Stand Out.
Think about it. Rental income is (obviously) a concern for rental investors. If you can offer a way to guarantee it every month, then why would they work with anyone else? By offering rental guarantee insurance, you will generate more leads.
- It Provides an Added Income Stream.
Like most insurance policies, those who distribute it receive a cut. To get the word out, insurers are banding together with property managers.
And why shouldn’t they?
One of the advantages of working with a professional property manager is that they bring the latest and greatest to their clients.
Rent loss insurance is another great way owners can lower risk and enjoy peace of mind.
Closing: Is Rent Loss Insurance Right For You?
I hope that you have a better understanding of this new policy. Like every other insurance, it covers unlikely but possible bad case scenarios.
With each passing year, millions of tenants default on rental payments for varying reasons.
If you’re a rental property owner:
It’s up to you to run the numbers and decide if the rent protection insurance cost is worth it.
If you’re a property manager:
It’s up to you to find the best provider/coverage and offer it to your clients who will benefit.
To do so, you need to decide if the cost is worth it.
The first thing anyone will ask is: How much does insurance to cover rent payments cost?
Some of your owners will rely on your expertise to determine if guaranteed rent is worth it.
Since it’s a new product, property managers are some of the first to be offering it.
And the main reason: It’s a great way to protect the lifeblood of a rental property investment.