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First-time landlords risk losses with poor insurance

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27/03/2013
Accidental or inexperienced landlords are paying for rent guarantee insurance that is unlikely to pay out.

The founder of tenant referencing and rent guarantee provider Certifi, Kesh Thukaram, said many policies contained small loopholes in the terms and conditions, such as one month excesses and multiple triggers to end the cover.

This meant some policies paid out for only a few of the months covered, he said, while pay out limits did not reflect the cost of missed rent.

Buy-to-let landlords could also be caught out by strict referencing requirements on some of these policies, he said.

He said: “It is important for accidental landlords not to get swayed by the top line price and actually understand how the policy is underwritten and what the qualifying factors are.

“They should make sure the checks done by letting agents are enough to make a claim.”

Rent guarantee insurance is often sold as an add-on alongside buildings and contents insurance or as part of a letting agent service. According to Thukaram, this could make it easy for landlords to overlook key qualifying details.

Rent guarantee insurance is sold through many channels including mortgage and insurance brokers, lettings agents or online.

But Thukaram said: “Until there’s a claim the landlords don’t generally get a full picture of rent guarantee.”

Your Mortgage examined the small print of a number of rent guarantee insurance products and found several differences in the terms and conditions offered.

The amount paid per claim, including legal expenses, varied significantly, as did the time period covered and the level of referencing required.

In one product, offered by Simple Rent Guarantee, rent cover was limited to a maximum of £15,000 per claim, or six payments of £2,500 per month.

The policy would not begin paying out until a full month’s rent was in arrears after deduction of the excess. It could then be cut off in one of three ways – the landlord gaining vacant possession of the property, the tenancy agreement ending or policy expiring.

In practice, this would mean a landlord whose tenant stopped paying rent in the third month of a policy would only receive a payment in the sixth month.

A landlord whose tenant stopped paying in the second-to-last month of a policy would receive nothing.

Simple Insurance proposition manager Andrew Weston said the policy was designed to meet the needs of professional landlords who received rent of roughly £500 per month.

He said the majority of customers came direct through the website and the company was clear and transparent about the facts of the policy: “When a customer buys a policy from us they have to proactively select they have read the terms and conditions before they buy the product. If they have any questions there is a forum.”

The exclusion period was a necessary guard against landlords buying the policy when they already anticipated problems with the tenant, he added.

Another product, Rentsure Silver Protection, would only pay landlords a maximum of £50 per day for alternative accommodation. By contrast, Just Landlords paid out £150 per day for a month and £10 per day for storage.

Referencing standards also varied – while some policies offered a quicker check for full-time working tenants, others demanded references done by the provider’s referencing arm or another agency it had expressly approved.

National Landlords Association head of policy Chris Norris said products which ended with the eviction of a tenant could affect landlords who needed to repair the property before re-letting.

He recommended landlords choose policies which covered them for an additional four months after an eviction: “If you have a tenancy go completely wrong, you may have quite a long time before the property is actually ready to put a new tenant in.

“If you don’t have a comprehensive policy you can come a bit unstuck.”

While lettings agents were a common point of sale, he said mortgage brokers also sold it alongside mortgages.

He said on rare occasions a PPI-style, mis-sale could happen: “Unfortunately there are instances where you might be led to believe you could only get your mortgage for that property if you take out that insurance product.”

A Financial Ombudsman spokesman said brokers selling rent guarantee insurance should take care to explain the products thoroughly and keep a record of conversations with customers: “Insurance contracts are different – there is a huge variety out there.

“Just because there might be common themes doesn’t mean they are not going to vary enormously.”

If the hoops a consumer had to jump through to claim on a policy were very high, it was probably not worth selling, he said.

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