Rent Guarantee and Loss of Rent – Knowing the difference
What is the difference between Rent Guarantee and Loss of Rent? Which one should I have? Should I have both or neither? These are questions that Source Commercial’s brokers hear every day, so here is a brief insight to both cover sections and which would apply to your clients and their insurance policies.
Let us begin with Rent Guarantee. So this cover does ‘exactly what it says on the tin’. It will guarantee your client’s rent is paid in the event that their tenant does not pay. Your client of course, must stay in accordance with and follow the terms of the Tenancy Agreement. Loss of Rent is slightly different in that it won’t pay the rent if a tenant doesn’t, however it will reimburse any ‘lost rent’ if the property becomes uninhabitable. There are of course, limitations to this cover; the event that caused the property to become uninhabitable, must be one of the insured perils (all can be found in the policy wording).
How could a claim arise? So if a tenant stops paying the agreed amount of rent, however, they still remain at the property, Legal Expenses will help the landlord take legal action whilst, Rent Guarantee will cover the rent lost. Thus protecting the landlords mortgage repayments. Loss of rent will kick in if your client has a fire, leaving the property uninhabitable, for example. The insurance will cover any lost rent while the property is being repaired.
So, which should you advise your client to have? Well, the answer any good Insurance Broker will tell you, is both. Although the legal expenses section of your client’s policy (should they have it) will cover the costs of evicting a tenant in the event that they don’t pay, the process will take time. And of course, time is money. Rent Guarantee will minimise the lost income whilst this process is going on. And have you thought about the money your client could lose if they were unable to have any tenants at all? It could be catastrophic to their finances.
Thank you to Mark Duffy of Source Commercial for this article.