Rent Guarantee Insurance – It can be quite beneficial when you rent a property, however, this procedure also comes with dep-rooted risks. One of the problems that landlords worry about is the chance and likelihood of tenants or renters defaulting on their rent payments.
Undoubtedly, this can cause financial jeopardy to the property owner or owner. Hence, to reduce such risk, many landlords consider rent guarantee insurance. But what type of insurance is this and how does it work?
To learn more about rent warranty insurance and what it covers, keep reading this guide. Before we proceed, rent guarantee insurance acts as a safety net for landlords if their tenants fail to pay their rent.
What is Rent Guarantee Insurance?
Rent guarantee insurance is a form of insurance designed specifically to safeguard landlords from any associated financial loss as a result of tenants defaulting on their rent. What’s more, it offers coverage for legal expenses related to evicting tenants and unpaid or outstanding rents.
How Does It Work?
The concept of rent guarantee insurance is easy. The landlord needs to first buy or purchase a rent warranty insurance policy from an insurance company. Then, the payment of the premium will be made to the insurer.
In exchange, the insurance quote will be active when the landlord files a claim against a tenant who failed to pay their rent. Typically, the insurance company pays out a particular amount of funds to compensate for the unpaid rent and if there are any legal expenses associated with eviction, they will cover that as well.
What Does Rent Guarantee Insurance Cover?
If you purchase a rent guarantee insurance policy, here is what you will generally be receiving coverage for:
- Unpaid rents.
- Legal expenses.
Thus, the insurance company will compensate you for any outstanding rent payments and cover associated legal costs.
What Are Its Exclusions?
Here are the common exclusions of rent guarantee insurance even though this depends on the insurance company as well:
- Rent obligations at the beginning of the policy.
- Leal expenses unrelated to rent default.
- Failure to pay rent due to insolvency or bankruptcy.
Hence, if the tenant is not able to pay their rent because of bankruptcy or insolvency, coverage will not be applied.
Who Needs It?
Rent warranty insurance will be quite beneficial for:
- Landlords or property owners with risky tenants.
- New landlords.
- Property owners in competitive rental markets.
- Landlords with mortgages.
Additionally, if you are renting out your property in an area where tenant turnover is high or unpredictable economic times, you should purchase rent guarantee insurance.
You also do not have to worry about income loss and financial instability because this form of insurance gives you the right form of protection.
How Much Does Rent Guarantee Insurance Cost?
Several factors are responsible for determining the price of a rent warranty insurance policy. Here are some of the influencing factors:
- Rental income.
- Tenant screening.
- Location.
- Policy coverage limits.
Meanwhile, you are expected to pay between a few hundred to over a thousand dollars per year for the premium. This also depends on the pricing structure of the insurance company.
How To Get Rent Guarantee Insurance
If you are a neophyte or a newbie to the world of insurance but would still like to purchase a rent guarantee insurance policy, here is a comprehensive guide you can follow for this process:
Research Insurance Companies
Begin the process by researching rent warranty insurance providers. In other words, search for companies that specialize in property insurance or landlord insurance.
Compare Quotes
Comparing quotes or policies from several insurance companies will help you understand the exclusions, premiums, and coverage limits.
Begin the Application Process
If you have succeeded in finding an insurance provider that offers the right services for your needs, begin to fill out the application form. You may also need to provide details on your rental income, previous insurance claims, rental property, and tenant screening process.
Underwriting Process
The insurance company will review or evaluate your policy application and may ask for additional documents, and information, or run more background checks.
Pay Premium
Once your application has been approved by the insurance provider, you will need to make payment for the premium payment. This will activate the policy. Once your payment is made and approved, your policy will be activated.
Go through your rent warranty insurance quote every year to make sure that your coverage needs are met and you can make changes to suit your needs as well.
Frequently Asked Questions
Is rent guarantee insurance mandatory for landlords?
No, the need to have rent warranty insurance is not made mandatory or compulsory for landlords. Although it is an optional insurance product, it is advisable to get a policy for proper protection and financial security.
What happens if a tenant stops paying rent?
If a tenant is no longer paying rent, the landlord will file a claim against them to their insurance provider. Next, the insurance provider will examine the claim and reimburse them if it is approved.
