There are always risks associated with owning and managing rental properties. But did you know there’s a way to potentially minimize those risks?
Rent guarantee insurance can provide peace of mind by guaranteeing rent payments if your tenant defaults on their lease or if your rental property becomes uninhabitable due to a natural disaster.
- Rent guarantee insurance protects landlords if a tenant breaks their lease or the property becomes uninhabitable.
- Consider coverage limits, payment terms, eviction protection, policy details, and the quality of the insurance carrier.
- Rent guarantee insurance typically costs between 5% and 7% of the total annual rent amount.
- The cost of rent guarantee insurance varies depending on the length of the lease, the coverage limit, and the deductible.
- Find rent guarantee insurance through a landlord insurance company or insurance broker or by shopping online.
What is rent guarantee insurance?
Rent guarantee insurance can protect landlords if they lose rental income due to a tenant breaking their lease or the property becoming uninhabitable due to damage or a natural disaster. The insurance can cover the amount of rent a landlord would have received if the property was occupied, up to a maximum amount, and can also cover the cost of repairs to the property.
There’s a difference between landlord insurance and rent guarantee insurance. Landlord insurance typically covers damage to the property itself and liability in the event that a tenant is injured on the premises. However, it does not cover loss of rent due to a tenant’s failure to pay or if the property can’t be rented while damages are being repaired. That’s where rent guarantee insurance comes in.
How can rent guarantee insurance benefit landlords?
Rent guarantee insurance can provide financial protection if a tenant fails to pay rent. This can be especially useful if the tenant has moved out and left the property vacant, as the landlord will still be responsible for mortgage payments and operating expenses.
Additionally, rent guarantee insurance can cover the cost of evicting a tenant who is behind on rent. Rent guarantee insurance can also give landlords peace of mind in knowing they may be reimbursed for lost rental income if the property becomes uninhabitable due to significant damage, such as flooding from a broken pipe, or a natural disaster.
There are some potential drawbacks to be aware of before you purchase a policy.
For example, most rent guarantee insurance policies have a deductible, meaning you will have to pay a certain amount of unpaid rent yourself. In addition, rent guarantee insurance policies typically only cover a certain percentage of the monthly rent, so if your tenant stops paying rent and owes you a large amount of money, you may still be out of pocket. Finally, rent guarantee insurance policies usually have a maximum payout limit, so if your tenant owes you more money than the policy limit, you will not be able to recoup all of your losses.
Despite these potential drawbacks, rent guarantee insurance can be a valuable tool.
What should landlords look for in a rent guarantee insurance policy?
Here are a few things to consider:
- Coverage limits. Make sure the policy you choose covers at least a few months of rent. This will give you some financial cushion in case of nonpayment.
- Payment terms. Most rent guarantee policies require you to pay an up-front premium. However, some policies may allow you to spread out your payments over time. Choose the option that best fits your budget.
- Eviction protection. Some rent guarantee policies will cover the cost of evicting a tenant who isn’t paying rent. This can be helpful if you live in an area with strict eviction laws.
- Policy details. Read the fine print so you understand what’s covered. Insurance policies can be complicated to understand, and there may be exclusions carriers use to deny claims.
- Insurance carrier. Choose a policy from a reputable insurer with experience in rent guarantee insurance. Talk to your insurance agent about your specific needs and get recommendations.
How much does rent guarantee insurance cost?
Rent guarantee insurance typically costs between 5% and 7% of the total annual rent amount, according to Investopedia. However, there are a few factors that affect the cost of rent guarantee insurance.
The first is the length of the lease term. A longer lease will typically result in a higher premium because the landlord is assuming more risk. The second factor is the amount of coverage. A policy with a higher coverage limit will naturally cost more than one with a lower limit. The third factor is the deductible. A policy with a higher deductible will have a lower premium because the landlord will be responsible for paying a greater portion of any damages.
Finally, the property’s location can affect the cost of rent guarantee insurance. For example, properties in areas with high crime rates or bad weather conditions will typically have higher premiums. An insurer will consider all of these factors to calculate your rent guarantee insurance quote.
Where can landlords find rent guarantee insurance?
One way is to contact an insurance company directly and ask about their policies. Another option is to go through a broker specializing in this type of insurance. Some landlords find they can get the best deals by shopping around online.
Two good options to consider for rent guarantee insurance: Rent Rescue and Steady. Both companies have experience providing insurance for landlords with single-family rental (SFR) homes, small multifamily buildings, and short-term vacation rentals:
- Rent Rescue claims to protect your residential investment property against tenant default.
- Steady says it is the leading provider of rent default insurance in the U.S.
Each method has pros and cons. For example, going through an insurance company can be a straightforward process, but it may be more expensive than other options. On the other hand, working with a broker can be a great way to find competitive rates, but it may take more time and effort. And shopping around online can be convenient, but it’s essential to select a reputable online insurance broker with experience in investment real estate.
Compare rates from multiple providers before making a decision.
Rent guarantee insurance can help landlords protect themselves from financial losses if a tenant defaults on rent or causes damage to the property, or if the property becomes uninhabitable due to a significant repair or natural disaster.