Rental income insurance is essentially a type of insurance cover you, as a landlord, can take out to cover:
- any monetary loss in the event the property owned & leased by you becomes uninhabitable due to an unexpected event and/or
- Non-payment of rental by your tenant.
Effectively, if a tenant cannot reside in the property due to damage caused by an unexpected event, they will exercise their right not to pay rent for the property.
In this scenario, as the landlord, you would not have any legal recourse to compel the tenant to pay the rent, unless there is a clause in the lease agreement saying otherwise.
It is therefore advisable, if you are a landlord, to take out Rental insurance to cover unexpected events such as:
- Fire
- Storm damage
- Burst pipes
where the tenant is forced to vacate or cannot reside in the property due to the damage. Rental income insurance will cover the loss of rental income in the event of the above happening, up to the limits set in the insurance policy.
However, it must be noted that perils such as earthquakes, floods and maintenance-related issues may not be covered under this type of insurance cover.
A further type of rental income insurance offered by some insurance companies would include cover for non-payment of rental by tenants, usually up to 3 months, as well as legal costs for rent recovery and eviction.
This is also termed as Tenant default insurance.
The difference between this type of insurance product to the first one indicated above is that this cover protects the landlord regardless of the condition of the property.
It covers loss of rental due to other circumstances, such as the tenant losing their employment or other extenuating factors that affect their ability to pay the lease rental.
The two types of insurance products have different triggers that affect a claim.
Some insurance companies offer these products separately or only one.
However, given the risk, taking cover is not always guaranteed, as the cover is determined by the tenant meeting certain criteria, including attaining a certain credit score.
This further emphasises the need to place a good tenant when leasing your property
To summarise the two different insurance products but covering loss of rental income can be viewed in the table below:
| Rental Income Insurance (Loss of Rent) | Rent Guarantee Insurance (Tenant Default) | |
| Covers | Fire, storm, burst pipes, vandalism (if covered peril) | Tenant default, job loss, financial hardship, refusal to pay |
| Does Not Cover | Tenant non-payment, evictions, and normal vacancies | Property damage, loss of rent due to disasters |
| Trigger | Property damage makes unit unliveable | Tenant fails to pay rent |
| Who It Protects | Landlord’s income during repairs/rebuild | Landlord’s income during tenant non-payment |
| Policy Type | Usually part of landlord insurance | Often a standalone policy or add-on |
We would advise that you reach out to a reputable insurance company to enquire about the costs of this type of insurance cover.
In today’s economic climate, it may well be worth covering the risk associated with leasing your property at a marginal cost.