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What exactly are loss of rental income and rent guarantee insurance—and should landlords pay for these optional coverages? Below we define these similar-yet-different types of landlord insurance add ons to help you decide what you really need.
Rent Guarantee vs. Loss of Rental Income Explained
Rent guarantee and loss of income insurance are easy to mix up because they both reimburse a landlord for lost rental income. So what's the difference? Rent guarantee and loss of income cover two very different scenarios under which a landlord could lose out on their rental income:
- Rent Guarantee: Covers lost rental income if your tenants fail to pay (e.g., your tenant is facing financial difficulties).
- Loss of Income: Covers lost rental income if your tenants move out because your property becomes uninhabitable due to an insured event (e.g., fire, flood, explosion, storm, escape of water or oil, vandalism, etc.).
Depending on your situation you might want one of these coverages, or both. Let's look at these two landlord insurance coverages in detail to help you figure out if you need them or not.
What is Rent Guarantee Insurance?
Rent guarantee insurance essentially provides a guarantee that you'll get your monthly rent payments, even if your tenant is unable to pay. So if your tenant faces financial difficulties (e.g., due to Covid-19) your insurer could cover your lost income.
In addition to covering lost rent if a tenant doesn't pay, a rent guarantee policy usually also includes legal expenses, which can cover the cost of a solicitor and court fees if you need to take your tenant to court (e.g., you need to serve notice or evict them).
- Rental payments not made by your tenant (subject to an excess and a maximum cover limit)
- Legal costs (e.g., mediation, solicitor, eviction advisor, court costs, etc.)
For reference, an eviction advisor can easily cost £1,000 and it costs £325 to submit an eviction order online
What is Loss of Rental Income Insurance?
Loss of rental income insurance essentially covers lost monthly rent payments if your property is damaged and you're unable to rent it out as a result.
For example, if the ground floor of your buy-to-let house is flooded in a storm or a fire leaves the property uninhabitable for months until repairs can be made. In those situations, your building insurance would cover the cost to repair the damage—but who makes up for the lost rental income while repairs are being made? That's where loss of rental income insurance comes in.
Loss of rental income insurance covers what is says on the tin—the rental payments you miss out on while your property is uninhabitable due to physical damage like fire, theft/attempted theft, flood, explosion, vandalism, etc.
A good policy will also cover the cost of re letting the property and certain legal fees. And you might even get cover for lost rental income if your managing agent's premises are damaged (e.g., preventing them from finding you a tenant); if a damage to a nearby property restricts access to your property; or if there's a failure of public supply (e.g., water, sewage, telecoms, gas & electric, etc.).
Do these products go by any other names?
Yes, to make matters even more confusing you might hear rent guarantee insurance referred to as tenant default insurance or rent protection insurance. Or loss of rent can also be call loss of rental income cover. Each insurer or comparison site might have their own way of referring to these coverages, and the names can vary from place to place. The following names are essentially equivalent:
- Rent Guarantee = Tenant Default = Rent Protection
- Loss of rent = Loss of rental income