As an independent landlord, you invest your limited financial resources in rental real estate hoping that it will appreciate over time. You expect your investment to provide passive cash flow as rents increase and properties get paid off. You extend yourself financially in hopes of creating wealth over time, and rely on rental income to cover mortgage, utility, and maintenance costs.
When a tenant cannot or will not pay rent, you run the risk of being unable to pay your expenses, potentially damaging your credit, or even losing your property to foreclosure. Rent guarantee insurance can keep you and your real estate investment safe from income interruption due to unpaid rent.
What is rental loss insurance and how can it simplify property management for landlords? Read on to find out.
What is Landlords Rent Guarantee Insurance?
Also called rental income loss insurance or rent default insurance, rent guarantee insurance is a risk management solution that protects property owners against loss if a tenant defaults or is unable to pay for some reason out of their control. This insurance pays the monthly rent for a set period if the covered renter stops making payments.
Rent guarantee insurance comes in several different forms:
- Protection against damage done by tenants
- Protection against damage done by pets
- Unpaid rent reimbursement
- Lease guarantee (if a tenant breaks their lease, it covers lost rent for a certain amount of time)
- Eviction protection (helps landlords with legal fees when they have to evict a tenant)
- Cash flow protections (financing of maintenance costs or guaranteed on-time rent deposits)
How Much Does Rent Guarantee Insurance Cost?
The price of rental income loss insurance depends on several factors, some of which can affect the cost considerably. The kind of property you are renting out, its size, location, as well as the number and kinds of renters you are renting to, will all influence the rental income you usually earn. This, in turn, will influence your insurance cost, as you may require a higher or lower level of protection.
Is Guaranteed Rent Insurance Worth it?
Even if you have performed strict screenings and credit checks on all your renters before handing the keys over, having rent guarantee insurance can still be worth it.
Unfortunately, with constant fluctuation and economic uncertainty, even the best renters can end up in a situation where they are unable to meet their rental commitments. This puts your rental income at risk.
Rent guarantee insurance may look like an additional expense but it helps landlords in tough situations such as:
- Renter stops rental payments and is evicted from the property
- Renter loses their job and cannot pay rent
- Tenant abandons the property and disappears
- Renter passes away and nobody is left to pay rent
- Tenant divorces their partner and breaks the lease
- Renter has to report for military duty and must be released from their lease
How Does Rent Default Insurance Work?
Landlords purchase the rent default insurance. If a renter defaults on their rent, the insurance usually starts paying the landlord directly after a month, while the insurer takes measures to recover the money from the renter.
Bear in mind that just because a property owner has rent guarantee insurance, it doesn’t mean that a renter gets a free pass on rental payments. The insurance only kicks in when rent is unpaid. If a renter continues to stay delinquent, you can start the process of their eviction while the insurance company can initiate action to recoup the money.
What are the Pros and Cons of Rent Guarantee Insurance?
Rent guarantee insurance can help property owners avoid financial challenges when renters are not able to pay their rent. Sometimes tenants lose their job, break up with their partner, become ill, or face circumstances that put them in a tough financial spot. Having rental income loss insurance helps property owners in situations where there is unpaid rent.
On the downside, rent default insurance costs money and you may end up paying for it only to never need it. Moreover, not every application for rent guarantee insurance is accepted as every insurer performs due diligence. So, the insurance policy could be rejected if you are applying for a renter with poor credit or an unsteady job.
Also, you typically have to apply for coverage on a lease-by-lease basis. This means if you have a property with 20 different units and want coverage for half of them, you will need 10 distinct applications. This can be quite time-consuming for a busy landlord.
Which Companies Offer Rent Guarantee Insurance?
Here are a few companies that are offering rent guarantee insurance to small landlords:
1. Avail (via Steadymarketplace.com)
Avail has partnered with Steady Marketplace to offer rent guarantee insurance to landlords. The insurance covers any kind of residence, from single-family rentals to multi-unit properties. You can choose the rent guarantee insurance you need, selecting a period of coverage between six weeks and six months per year. Based on that information Avail will give you pricing on the spot, as a part of onboarding a new tenant to their rental property management platform. If you already have property management systems in place and are not using Avail, Steady Marketplace offers their insurance policies directly.
To qualify for coverage, an eligible lease:
- Must be on residential property that is the renter’s primary residence
- Should have already commenced at the time of purchase of the policy or commence within 30 days from the policy start date
- Must have a minimum term of 6 months
- Should have a minimum remaining term of 6 months at the time of purchase
- Should have a minimum rent amount of $800 and a maximum rent amount of $5,000
Also Read: Avail Property Management Software Overview
The rent default insurance offered by Rent Rescue includes:
- Up to six months reimbursement of lost rental payment when the default is because of non-payments, which includes eviction or skips.
- Up to three months reimbursement of lost rental payment when the default is because of a court order, the demise of the renter, or military deployment.
- Reimbursement of $1,000 of legal expenditures (such as attorney fees and court charges) for tenant eviction
- One month’s rent deductible.
- The policy is valid until the end of your lease with the renter but no longer than 12 months.
- Available for all types of residences nationally except in Kentucky and Alaska.
With RentRescue you can access insurance at an average yearly premium of $300 per unit ($25/month).
NestEgg offers a number of interesting features. Their Growth level guarantees on-time rent deposits by providing tenants flexible ways to pay and advances full payment to landlords whether full rent has been paid by the due date. Fittingly they call this feature Rent Advance. In addition, the Growth level finances maintenance costs so that landlords can pay them over up to 6 months. Their Occupancy Guarantee applies to renters who have been selected by NestEgg, which ensures a landlord’s income in the event of lease default. In that event, NestEgg also waives the costs of placing a new tenant, which can range from 50-100% of a month’s rent.
The Freedom level provides these same features and additional supports for both landlords and tenants, effectively allowing rental owners to step out of all management duties.
PayRent offers a collection of features and controls called RentDefense that provides landlords a financial safety net by ensuring that the renter pays rent when it’s due.
RentDefense virtually eliminates non-sufficient funds (NSF) returns by taking the following measures to ensure that a tenant is able to make their payment:
- Bank balance verification
- Requirement of backup payment method with automatic failover
- Requirement of automatic scheduled payments
- Option to block partial payments
Related Read: The Best Online Rent Payment Service for Small Landlords
Nomad’s model is a bit different than the other options we’ve talked about. They’re currently operational in Denver, Boulder, and Phoenix, but have plans to continue expansion. In effect Nomad is your renter. Landlords sign a 1-3 year lease with the company at an agreed-upon price. Nomad markets and leases the property to ‘subtenants’. They pay the first two month’s rent up front and guarantee reliable income through the full term of the lease.
While Nomad does not do day-to-day property management, they do have preferred providers in each of their markets who they refer to. Their model also makes sense for self-managing rental owners who need guaranteed rental income.
In addition to guaranteed cash flow Nomad’s “Property Protection Plan” offers $10,000 worth of insurance against property damage caused by a tenant they’ve placed in your property.
Landlord Gurus Take Away
As a landlord, you may rely upon your rental income to cover mortgage payments. Rent guarantee insurance can step in to cover your rental income if your renters stop paying their rent for any or a variety of reasons. With thousands of renters going into arrears every year, this insurance can provide landlords with peace of mind and valuable backup.
Rent guarantee insurance can be purchased a la carte or in combination with full featured property management software products. While these products may seem expensive, they can be valuable, especially in the case where reliable cash flow is essential to a property owner’s financial health. There are several types of insurance available such as buildings insurance, liability insurance, pet insurance, and more. We suggest that you evaluate your situation and needs when considering the purchase of this type of insurance.
- Advertise your property, find and screen tenants, sign leases, collect rent, and e-sign custom local leases, with tools built specifically for DIY landlords.
- Strength: Complete Solution
- With no subscription plan and a simple pricing structure, PayRent helps property owners and managers collect rent online safely, reliably and automatically.
- Strength: Rent Collection
Disclosure: Some of the links in this post are affiliate links and Landlord Gurus may earn a commission. Our mission remains to provide valuable resources and information that helps landlords manage their rental properties efficiently and profitably. We link to these companies and their products because of their quality, not because of the commission.