Guide to Rent Guarantee Insurance

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Rent Guarantee Insurance (RGI) can protect buy-to-let landlords against the risk of their tenants falling behind or ceasing to pay rent altogether.

How does it work?

The insurer runs checks on the tenant to make sure they can afford the rent and are likely to pay it. It then provides a policy to the landlord which will pay out if the tenant doesn’t pay up. If this happens:

– The landlord notifies the insurance company of non-payment, after an agreed period, usually three weeks.

– The insurance company starts eviction proceedings – at its expense. Once this point has been reached the tenant will end up being evicted, unless the landlord cancels the insurance, which they would be unlikely to do as premiums are charged upfront and are non-refundable.

– The insurance company pays out any rent they are due to the landlord until the tenant has been evicted.

The insurance company subsequently pursues the tenant to reimburse its losses through the courts – the landlord is no longer involved.

Until recently buy-to-let landlords could only buy this cover through letting agents, but it is now available direct from the insurance company.

However, it makes sense for landlords to check the small print of any policy very carefully before signing up.

There are two types of RGI cover available.

1. Full tenant referencing and rent guarantee insurance

2. Express tenant referencing and rent guarantee insurance

The full cover takes longer to set up as it can take the insurer a week to carry out full checks, including:

  • Credit referencing covering all addresses for tenants for the last five years
  • Credit scoring
  • Employers or accountants reference to verify income
  • Mortgage company or previous landlords reference

The express cover can be put in place immediately, but is more expensive as it is more risky for the insurer.

How much does RGI cover cost?

It can cost as little as £100 per year, per property, depending on the property, area and tenant, plus a small referencing charge per tenant.

Disadvantages of RGI:

If an insurer declines to cover a property, it can restrict the market for potential tenants and increase the risk of rental voids.