As a landlord/property owner, you rely on the rental income to pay the mortgage, cover the electricity, gas and water standing charges, pay for maintenance and upkeep and, hopefully, provide you with an income.
“Loss of rent” and “rent guarantee” are two very different ways of property owners insurance and protecting that rental income.
Loss of rent – if there is an issue at the property such as fire or flood which make it unfit for habitation, your tenants will have to move out and will undoubtedly stop paying their rent. All property owners’ policies include alternative accommodation cover so your tenants will have somewhere to stay until they can move back in. This won’t be somewhere posh – probably a B&B, a chain hotel or a property available for short term rental – but will be somewhere safe and secure. So, that’s one problem taken care of but what do you do about the rent not being paid while the repairs are taking place?
Most landlords’ policies include “loss of rent” either built-in to the policy or as an optional extra – one that we always strongly recommend. There are two factors to take into account in deciding what cover to take:
- The length of time that might pass before the property is back in use. Water damage from flood or burst pipes can take a long time to fix. The length of time covered by the insurance is called the “indemnity period”. Most commonly, this is 12 months but consideration should be given to covering longer periods if there is something about the property – such as being listed, of unusual construction or remote – that might mean that it takes longer than average to repair.
- The obvious and relatively simple factor to consider is the monthly income.
We have a client who very unfortunately had two substantial escape of water claims in the space of two years on separate properties. Both were ultimately settled for around £4,000 each with roughly half of that being the loss of rent amount. Without the cover being in place, they could have been £4,000 out of pocket and that’s a big hit for a small business to take.
Rent guarantee insurance is very different and typically sold as a separate policy rather than as an add-on. Basically this is about your tenant not paying the rent – which has been a big issue during lockdown when landlords were unable to evict non-payers – or “doing a runner”, leaving a debt behind. For several months, this type of cover became unavailable as insurers evaluated the situation. It is now available but through fewer insurers. Cover does depend on the landlord or managing agent taking up tenant references in the format dictated by the insurance company and this can be a costly exercise. Also, claiming can be a bit of an obstacle course with certain actions having to be taken at the right time. However, it is worthwhile with a view to protecting that all-important regular income.
Our advice, as ever, is to talk to us 01442 242400 so that our experienced account handlers can provide you with the best possible advice.