Letting agents' number one priority is looking out for the best interests of their landlords. Rent protection insurance is one of the many ways agencies can do this, by protecting landlords against the risk of letting out an investment property. However, many letting agents are sceptical of the real value of some rent protection insurance policies. “We’ve had rent protection policies before and, in my honest opinion, a lot of them weren’t worth the paper they’re written on,” says Hannah Brookham of MK Estates.
The issue with many of these policies is they’re not comprehensive enough and the criteria has made them incredibly difficult for landlords or agents to claim on. Letting agents need to look for rent protection policies that will actually provide their landlords with appropriate levels of protection should their tenants default on rent and need to be evicted from a property.
When evaluating a policy, the main thing to do is to read through the policy wording and ensure you understand how the policy works. There are a few high level details you can look for to help identify whether the policy is going to be suitable.
First, look at whether the policy has an excess. It’s incredibly frustrating for a landlord if they think they have rent protection but find they’re actually going to lose a month’s rent because they need to make an excess payment - particularly if they’re paying a mortgage on their rental property and have to dip into their own funds to make a mortgage payment - something that could have been prevented easily by choosing a nil-excess policy.
Then look at how soon the insurance provider will make payments after vacant possession. Some policies will pay nothing further as the property has been returned whilst others will pay from 50% up to 75% of rent for a number of months after vacant possession. The small print is important - some policies might stipulate that they will only pay once the property is remarketed, which means that landlords might not get compensation until a month after vacant possession. Given a landlord will likely need to invest some time and money in the property before it can be remarketed, they could be facing a loss. It’s also worth considering, once on the market, how long the property will be available as any payments will cease once a new tenant is found, which would also minimise the benefit.
Finally, look at what the legal expenses package includes. Most rent protection insurance policies include legal expenses as standard, but the amount of cover can vary from as little as £2,500 to as much as £100,000. Legal expense cover is there to facilitate the eviction of non-paying tenants in a worst-case scenario. The amount of the legal expense cover tells you how much you’ll have to utilise - it’s unlikely to ever cost £100,000 to evict someone, but it does give landlords more confidence. Find out what else is included as part of the legal cover - does it include the serving of sections as part of the process? If it doesn’t, that’s going to take the letting agent additional time and money to do on behalf of their landlord.
Offering your landlords a more comprehensive rent protection insurance policy could cost slightly more upfront, however, it could save them thousands in the long run. “Unfortunately, there has been times when not having insurance has cost landlords quite a lot of money,” says Daniel Glewis of Shaws Kensington. “The reason we wanted to to offer rent and legal protection is to make sure that our landlords are fully covered in the worst case scenario. It is the best thing an agent can do.”