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BTL Insurance - First Time landlord? What's the difference between Loss of Rent and Rent Guarantee Cover?
There's a lot for Landlords to consider when purchasing a property to let out.
Like any property you should have buildings insurance and this will be compulsory where you are having a mortgage. You will need specialist landlord insurance. If you take out normal residential buildings insurance this will not be valid in the event of a claim. If you buy a flat the buildings insurance is likely to be arranged by the landlord and you will need to ensure that this covers flats to be let to tenants and any restrictions they may have on the type of tenants you can let to.
You have to decide whether you also need Landlords Contents Insurance for any furniture, white goods, carpets/flooring or curtains which belong to you.
Then there's considering whether to select optional covers such as Accidental Damage, Malicious Damage or Theft by Tenant.
When obtaining quotes you are also likely that you will see the following two optional covers; Loss of Rent and Rent Guarantee. Whilst the names are similar, the financial protection they offer cover different circumstances. We've summarised what these two elements of cover generally offer, and why you may choose to add them to your policy for an additional premium.
Loss of Rent
The rent received from your tenant is usually an income you rely upon or require to cover mortgage payments and its important that this comes in regularly.
Unfortunately there are many ways in which payments may not be paid. Eg, if a fire made the premises uninhabitable or it was damaged in a storm or flood, your tenants may be forced to move themselves, at least temporarily. However, Loss of Rent Insurance can help cover you in such a situation. If it is not possible for you to rent the premises because the property is uninhabitable due to an insured incident then you can make a claim for the shortfall in the rental income (subject to the policy conditions).
No matter how carefully you vet your tenants, problems with unpaid rent can still happen. If your tenants stop paying rent then you may need to evict them, while at the same time keeping up with your monthly mortgage payments.
Rent Guarantee Insurance pays the unpaid rent while your tenants or ex-tenants are still in your property. Depending on your insurance provider you may also be covered for:-
- the costs of repossessing the property.
- Partial rent whilst (for a period set out in the policy) undertaking necessary repairs when the tenant has vacated.
(subject to the policy conditions)
You may need to check the policy as some require the policy to be taken out prior to the tenancy agreement starting if any claim within the first 90 days of the policy commencement date is to be met.
So which optional cover do I need?
If you're worried about the financial impact of lost rental income following an insured event, then consider taking out Loss of Rent cover.
If you're worried about tenants or ex-tenants not paying rent, then consider taking out Rent Guarantee cover.
If in doubt you should speak with an insurance broker.
If you are looking to buy your first property to let out or add to your existing portfolio contact us for a free no obligation quotation
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