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What is Loss of Rent Insurance?

29 April 2021

Loss of rent insurance forms part of a property owner’s or landlord’s policy. If an insured event, such as a flood or fire, occus which renders your property uninhabitable and prevents you from receiving rental payments, it can compensate for any loss of income.

In this post we’ll explain what loss of rent insurance is, what it covers, and what it does not cover. We’ll also look at rent guarantee insurance, and explain the difference between these two very different forms of cover.

What is Loss of Rent Insurance?

Loss of Rent insurance cannot be bought as a stand-alone policy. It forms part of a Property Owner’s or Landlord’s insurance policy. As the name suggests, loss of rent insurance is a form of cover that safeguards landlords and letting agents against a loss of rent income. A Property Owner’s or Landlord’s policy which includes loss of rent insurance will cover you if your property is damaged by an insured event, such as vandalism, fire, flood, or another natural disaster.

 If such an insured event occurs and your property is deemed to be uninhabitable you won’t be able to let it out. You’ll therefore lose your rental income. Loss of rent insurance covers you for this loss.

It’s worth saying at this point that not all Property Owner’s policies include the same level of loss of rent insurance.  Cover will be provided on a “Full Loss of Rent” or a “Basic Material Damage” basis. Full Loss of Rent cover is the most comprehensive level and will compensate you for the loss of or reduction in rent from the time of the damage until it is rented again, up a time limit given under the policy known as the Indemnity Period. This should be a minimum of 24 or 36 months, otherwise in the event of a major loss you may find that there is inadequate cover. It can even cover the additional cost of re-letting your property, and some other losses you may suffer such as managing agents fees to project manage the repairs. Basic cover, on the other hand, may only cover loss of  rent for the period of time that the property is completely uninhabitable, not the time it then takes to re-let it.

In effect, for property owners, Loss of Rent insurance is the equivalent of Business Interruption insurance for businesses, in that it covers the non-physical aspects of a loss.

If you buy your policy online or direct from an insurer, the level of cover provided may not be obvious and it may only become apparent if and when you need to make a claim. This is why it is worth talking to a specialist broker, such as Hazelton Mountford, to ensure you have the appropriate cover in place.

The actual damage to the property will be included under the buildings section of the policy. There needs to be insured damage under this section to trigger the loss of rent claim.

What is Rent Guarantee Insurance?

Many people get loss of rent insurance mixed up with rent guarantee insurance. Though they sound similar, these are actually very different and cover different situations. While loss of rent insurance covers you following damage to  your property, rent guarantee insurance, covers rent defaults by your tenants.

There are many reasons why your tenants might default on their rent. They may split up with their partners, lose their jobs, or run into financial hardship. You might also encounter tenants who, for one reason or another, simply refuse to pay their rent.

This is where rent guarantee insurance can help you. With this form of cover, you can still get your monthly rent payments, even if your tenants cannot or will not pay. A rent guarantee insurance policy also covers legal fees, to evict a tenant or take them to court. Many good policies will also cover legal fees for other kinds of legal dispute you may have regarding the property.

For more information about the help and support that’s available should your tenants stop paying rent, head here to read our full guide.

Loss of Rent Insurance vs. Rent Guarantee Insurance – Which is Right for Me?

So loss of rent insurance and rent guarantee insurance both cover you for unexpected interruptions to your rent payments. And though they sound similar, each offers a different sort of cover for a different set of circumstances.

So which form of cover is right for you?

The answer, of course, is both:

Do I Need Loss of Rent Insurance?

You have no way of knowing what sort of crises could affect your property. Nobody expects fires, floods, theft, and other incidents. Yet, they happen and  could lead you to make a substantial loss. If you have comprehensive loss of rent insurance included in your Property Owner’s or Landlord’s policy, you won’t have to worry about loss of income. You can instead focus on restoring your property and finding new tenants.

Do I Need Rent Guarantee Insurance?

Nobody was prepared for the turmoil that Covid-19 and government lockdowns would bring. It meant that many previously-reliable tenants were no longer able to afford their rents. And many felt that the government support was great for tenants and not so great for landlords. 2020 demonstrated that none of us can ever take anything for granted. Rent guarantee insurance can at least provide some peace of mind that, no matter what happens, you might still be able to rely on your rental income.

If you’re a landlord or a letting agent, you’ll need additional insurance cover beyond rental protection. A good Buildings insurance policy, for example, will cover you for damage to your property, including that caused by tenants. You might also consider a quality tenant referencing service and offering your tenants contents insurance, to help you attract and retain the sort of tenants you can depend on.

At Hazelton Mountford we specialise in tailoring comprehensive policies for property owners, landlords and letting agents that will cover you for all eventualities. Head here for more information.