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Rent protection insurance – to take or not to take…

June 5, 2017Tags: Landlords | tenants | renting | letting | lettings

Unless tenants have had wage increases, they might struggle to pay higher rents, so if you don’t already have rent protection insurance, it’s definitely worth considering now. If 4% sounds like a risk you don’t fancy taking, then read on! Having tenants in arrears is a ‘double hit’: you lose rental income and also incur the extra costs associated with resolving the situation. And this is only part of the story, we often see the other side – the emotional impact on landlords of a tenant, especially those unwilling to pay your rent. 

The cost of a tenant not paying their rent

If a tenant has a short-term problem paying their rent, it’s usually not too much of an issue. Perhaps there’s been a problem with the bank’s payment systems or the tenant has been ill and had to take some time off work. These kinds of things can often be fixed fairly easily, if the tenant either makes up the arrears in full as soon as possible or pays extra each month until the debt’s settled. In this case, you’re not left out of pocket and would have no need to make an insurance claim. 

But for every month that a tenant defaults on their rent, you not only lose their rental income, you also have to continue to pay out the property costs. The table below shows how the costs can quickly grow if a tenant doesn’t pay their rent for three months: 

YM Table

 

*Average rent in England and Wales was £798 in February 2017. Source: BTL Index
 assuming 5% yield and a property value of £191,520
**Estimated landlord insurance and maintenance and a 50% LTV mortgage.


If you need to take the tenant to court to evict them, you could also have to pay:

Court fees - around £355
Bailiff’s fee - around £110
Using an eviction company to do the work for you (including court and bailiff’s fee) - around £1,000.  

Overall, the likely cost of 3 months’ rent arrears and evicting the tenant would be around £5,000, which is a lot of potential profit to sacrifice!

How does rent insurance work? 

Policies vary, but most will include some form of rent payment if your tenant stops paying and cover your legal costs for evicting the tenant and chasing them for rent still owed. 

At Your Move, we offer a Rent Protection and Legal Expenses insurance. It’s provided by Aviva, one of the largest insurers in the UK, and offers:ant stops paying and cover your legal costs for evicting the tenant and chasing them for rent still owed. 

  • 100% of monthly rent for as long as 12 months (up to a maximum total of £35,000)
  • Up to £15,000 of legal expenses to pay for regaining possession of your property from a tenant
  • Up to £15,000 to evict squatters who are in your property unlawfully.

We can only offer this insurance to landlords who take advantage of our Rent Collection or Full Management service. That’s because we can reassure the insurance company that the tenant will have been correctly referenced and that the property will be checked periodically to pick up on any potential problems that might lead to arrears. 

Example of the cost of Rent Protection Insurance***

Monthly Rent £600
Monthly Rent Protection Insurance £16.50

***To note: price example shown is calculated at 2.5% of monthly rental income plus Insurance Premium Tax, current prices due for review 01 June 2017

So you just need to weigh up the cost of this insurance, which we believe is relatively low, against potentially losing anything from a thousand pounds to upwards of £5,000 if you have to evict a tenant. 

For more information, visit https://www.your-move.co.uk/services/insurance/landlord-insurance and give us a call on 01392 849 758 if you’d like to discuss taking out this cover.

***Terms and conditions apply. This information is a summary only. You will receive a full policy document upon application, which will set out the terms, conditions and limitations of this product.