Rent guarantee insurance—also known as rent default insurance—is a risk management product that can protect you as a landlord against financial loss if tenants are unable or unwilling to make rent payments.
Rent guarantee insurance offers financial protection if your tenant fails to pay rent. This type of coverage usually kicks in after a designated waiting period in which a tenant has failed to pay rent—typically 30 days. Coverage then covers the basic rent payment for a limited time period. These payments safeguard your income, but the tenant is still liable for the owed rent and any associated legal fees.
Even if you’re diligent in screening and selecting tenants, life is unpredictable. A reliable tenant could experience a significant life change—such as job loss or illness—that leaves them unable to pay their rent. If you rely on your tenants’ rental payments to cover your mortgage, taxes, savings, or other expenses, having rent guarantee insurance in place can help ensure you don’t fall behind on your payments just because your tenant falls behind on theirs. This type of coverage can also assist in covering the cost of evicting a tenant who is behind on rent.
There are some potential drawbacks to rent guarantee insurance. For instance, most rent guarantee insurance policies have a deductible, meaning you’re responsible for shouldering a certain amount of unpaid rent before your policy activates. In addition, rent guarantee insurance usually has a maximum payout limit, so if your tenant owes more money than the policy limit, you may still end up incurring a loss.
Loss of rental income insurance is a type of coverage that can help protect you from the financial risk of your rental property becoming uninhabitable due to an insured peril. If your property is badly damaged during a storm, experiences plumbing issues, or has other problems that force your tenant to temporarily relocate, this type of coverage can make up the lost rent. In contrast, rent guarantee insurance only covers rent payments when a tenant refuses to pay them due to other circumstances, such as deployment, job loss, or divorce.
On average, rent guarantee insurance costs between 5% and 7% of your total annual rental income. However, there are some additional factors that can impact the cost, including:
You can purchase rent guarantee insurance coverage in addition to your standard landlord insurance policy. Before getting approved for a rent guarantee insurance policy, your insurance provider will likely look to confirm that your tenant:
If your tenant doesn’t meet these qualifications, the insurance company will likely require them to have a guarantor who can cover any delayed or unpaid rent.
If you’re ready to protect your rental property, Obie can help ensure you’re getting the right protection for you and your unique real estate investment.