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When renting out a property, landlords face the challenge of making sure they receive their rent payments on time and in full. Two popular options that provide protection for landlords are rent guarantee insurance, which is also known as rent protection insurance, and a rent guarantor. While both options help to mitigate the risk of missed rent payments, there are important differences between them that landlords should understand before making an informed decision.
Rent guarantee insurance is a policy designed to protect landlords from the financial impact of tenants failing to pay rent. If a tenant defaults on rent payments, the insurance company will cover the rent, typically for up to six months. Some policies also offer legal assistance for eviction proceedings property disputes and tenancy related issues, providing landlords with added security. Total Landlord offers legal expenses and rent protection insurance as an add-onto your buildings and contents insurance policy. When you select our legal expenses insurance you can also opt to add on our rent protection insurance solution to safeguard your rental income.
Rent protection insurance provides landlords with financial protection by covering unpaid rent up to a set monthly limit and offering assistance in recovering overdue rent. This maintains the landlord’s income even if tenants fail to pay rent. When combined with legal expenses insurance, landlords also receive financial support if faced with unexpected legal challenges such as having to evict a tenant, which can save time and money. The landlord deals directly with the insurance company, meaning they are not dependent on a guarantor to cover unpaid rent.
The downside of rent guarantee insurance is that policies usually have strict eligibility criteria for tenants, such as credit checks or income requirements. However, these are no different to the tenant referencing checks that landlords should be taking on prospective tenants to find out if they will be able to pay the rent and whether they are likely to look after the property.
A rent guarantor is an individual or company that agrees to take on the financial responsibility for a tenant’s obligations if the tenant defaults on rent payments or other terms of the tenancy agreement. Guarantors are usually family members, friends, or professional services that make sure the landlord receives rent, even if the tenant is unable to pay. This provides the landlord with an added layer of security, as the guarantor will step in to cover the rent if necessary.
A rent guarantor must be a legal adult, a wage earner, and generally a homeowner. They should have sufficient income to cover the rent if the tenant defaults and a satisfactory credit history. For international students or people unable to find a personal guarantor, rent guarantor insurance companies can step in to provide this security. The need for a UK rent guarantor is likely to become more important for international students if, under the Renters’ Rights Bill, landlords are no longer able to request more than one month’s rent in advance.
A rent guarantor can be an invaluable resource when renting to tenants who may have limited financial history or a low credit score. Some common scenarios where landlords might request a guarantor include:
In these cases, a rent guarantor provides landlords with an additional layer of security that protects against missed rent payments.
One of the main advantages of having a rent guarantor is that there are no ongoing costs, as it does not require an annual premium like rent guarantee or rent protection insurance. A guarantor can also help tenants with low credit scores or limited financial history secure a rental agreement, as it provides landlords with added security. Additionally, tenants may feel more motivated to make timely rent payments, knowing that their family member or friend will be responsible forcovering the rent if they fail to do so.
One drawback of a rent guarantor is that not all tenants will have someone who can act as a guarantor, and in such cases, professional rent guarantor services may be needed at an additional cost. It also places the landlord's security in the hands of a third party, meaning they are dependent on the guarantor to cover rent if the tenant defaults. What’s more, in a joint tenancy, a guarantor could be held responsible for the entire rent if one tenant fails to pay, even if they only guaranteed the rent for one individual. This is due to the principle of joint and several liability, where each tenant is individually responsible for the full rent amount.
Check out our article, ‘What is a guarantor and who can be one?’ for more detailed advice on using a guarantor.
Before handing over the keys to your rental property, it’s crucial to check that your tenant is reliable and capable of looking after the property. Proper tenant referencing plays a critical role in the process, helping you assess a tenant's financial stability, previous rental history, and reliability. A thorough referencing process reassures both the landlord and the tenant that the rental agreement is being handled professionally. By confirming the tenant’s ability to meet rent payments and take care of the property, referencing helps reduce the likelihood of missed rental payments and property damage. Guarantors need to undertake credit checks and obtain references in the same way tenants would.
Rent guarantee or rent protection insurance offers financial protection by covering unpaid rent, with landlords paying an annual premium for this coverage. In contrast, aren't guarantor is typically an individual, usually a family member or friend, who agrees to cover the rent if the tenant defaults, with no ongoing cost unless using a professional service. While rent guarantee insurance provides more formal and reliable coverage, a rent guarantor depends on the willingness and financial capability of a third party, and this may not be an option for some tenants.
Choosing between rent guarantee insurance and a rent guarantor depends both on your needs and the evolving rental market. Rent guarantee, or rent protection insurance, offers reliable coverage for unpaid or overdue rent, making it ideal if you want the peace of mind of protection without relying on a third party. It’s a good option for tenants with poor credit or financial instability. With the Renters’ Rights Bill introducing legislative changes, rent protection insurance is becoming an essential tool to help landlords reduce financial risk . Check out our article, ‘Safeguarding your rental business in a post-Section 21 world with legal expenses and rent protection’ to learn more about how Total Landlord’s legal expenses and rent protection insurance can provide critical support. A rent guarantor may be suitable for tenants with reliable financial backing, but the guarantor’s willingness and ability to pay is crucial. Choose the option that best aligns with your level of confidence in the tenant’s reliability.
Steve Barnes, Head of Broking at Total Landlord, sums up:
“As the Renters' Rights Bill ushers in a new era of regulation, it’s more important than ever for landlords to protect their rental income and legal position. Rent protection and legal expenses insurance provides a safety net not only against missed rent, but also the legal costs of recovering possession, which may be more lengthy and costly under the new rules. While a guarantor can offer reassurance, they must be thoroughly referenced just like a tenant, and ultimately their ability to pay isn’t guaranteed. Our insurance gives landlords direct, professional support when they need it most, removing the uncertainty. To find out how to safeguard your rental income, visit our legal expenses and rent protection insurance page.”
