Last Updated: February 2024
There are many insurance products available to provide landlords with creative avenues for financial security. One of which is rent guarantee insurance. This type of coverage acts as a safety net for one of the most pressing concerns landlords face – loss of rental income. These policies are designed specifically to mitigate the risk associated with rental income, where it aims to maintain rental income in the event that property income is disrupted for one of several reasons (more details below).
What is Rent Guarantee Insurance?
Rent guarantee insurance is a type of coverage specifically designed to protect a landlord’s rental income. This type of insurance policy can cover the lost income and even the legal expenses related to eviction proceedings, in the event that a tenant fails to pay rent for a covered reason. With even the cheapest average price of rent in the United States hovering around $900 per month, this type of insurance can be a worthwhile investment to circumvent any disruptions in rental property revenue streams.
What is Covered & Not Covered in Rent Guarantee Insurance
Rent guarantee insurance policies offer a specialized form of protection for landlords, with specific items that are covered and not covered via exclusions. These policies are primarily designed to ensure that landlords continue to receive their rental income, even if tenants default on their payments. However, like all insurance policies, rent guarantee insurance has its limitations and doesn’t cover every possible situation.
| Typically Covered | Typically Not Covered |
|---|---|
| Unpaid rent due to tenant default | Rent loss due to property vacancy between tenants |
| Legal expenses related to eviction | Rent loss due to natural disasters or other damage making the property uninhabitable |
| Potential damages awarded to the tenant from a lawsuit | Delays in rent payment that are not classified as a default |
| Some policies cover loss of rent due to tenant bankruptcy | Rent loss due to disputes or disagreements not resulting in default |
Average Cost of a Rent Guarantee Insurance Policy
$847*
*Based on the United States average rental price of $1,411 and a 5% annual premium on gross rent. Source: RentalRealEstate
We estimate the average cost of a rent guarantee insurance policy to be $847 per year. It is commonly priced as a percentage of the monthly rent amount. Typically, landlords might expect to pay anywhere between around 3% to 7% of the monthly rental income for this type of coverage. Therefore, for a property rented for $1,000 per month, the cost of this type of insurance would likely range from $10 to $50 per month.
Rent Guarantee Insurance Policy Example
Let’s visualize an example where you are a landlord who has rented out a single family rental house for $1,500 per month, and you have a rent guarantee insurance policy. Unfortunately, your tenant loses their job and is unable to pay rent for three months. With your rent guarantee insurance, instead of missing out on $4,500 of expected income, you file a claim with your insurance provider. After your claim is approved, the insurance company compensates you for the lost rental income according to the terms of your policy.
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Rent Guarantee Insurance Frequently Asked Questions
What is the Difference Between Rent Guarantee Insurance and Loss of Income Coverage?
While both coverages offer protection against loss of rental income, they apply in different scenarios: Rent guarantees protect against tenant default, whereas loss of income coverage protects against property damage causing loss of use.
Rent guarantee insurance is designed to cover lost rental income specifically when a tenant defaults on their rent. This could occur for a number of reasons, such as job loss, illness, or other financial hardship. The primary aim of this insurance is to ensure landlords receive their expected rental income, even if the tenant fails to pay.
Loss of income coverage, also often known as Fair Rental Value Coverage or Business Interruption Insurance, is typically part of a standard landlord insurance policy and applies when a covered loss, such as a fire or other property damage, makes the rental unit uninhabitable, resulting in the landlord losing rental income during the period of repair or rebuilding.
What are the Requirements to Purchase Rent Guarantee Insurance?
Any landlord can generally purchase rent guarantee insurance, as long as certain eligibility requirements are met:
- A signed lease agreement with the tenant
- Tenant screening or credit check reports
- Tenant’s proof of income
- Property inspection reports
- No history of rent defaults with the tenant
- The property is in a location where the insurance product is available
- Compliance with local landlord-tenant laws
- Specifics can vary from insurer to insurer
Does Rent Guarantee Insurance Have Deductibles?
Yes, some rent guarantee insurance policies come with a deductible (i.e. the amount you’re responsible for paying before your insurance coverage kicks in) and/or a waiting period to utilize the insurance. This is common practice among insurance products such as umbrella policies and renters insurance. The deductible for this type of insurance varies widely based on the specifics of the insurance policy and the insurance provider, but can roughly be in the range from $500 to $1,000 per claim.
Can Rent Guarantee Insurance be Purchased Any Time?
Technically, yes, however most insurers often require that a new lease be in effect or that a tenant screening has been recently performed at the time of policy purchase. This is to ensure that the policy accurately reflects the risk based on the tenant’s current payment history and creditworthiness. Some insurance companies may also have specific guidelines regarding the timing of purchase relative to the lease start date.
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About the Author
Ryan Nelson
I’m an investor, real estate developer, and property manager with hands-on experience in all types of real estate from single family homes up to hundreds of thousands of square feet of commercial real estate. RentalRealEstate is my mission to create the ultimate real estate investor platform for expert resources, reviews and tools. Learn more about my story.
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