The History of Insurance – why you should invest in Rent Guarantees
Today I’m writing from a coffee shop in Edinburgh. Near here I discovered The Museum on the Mound – a museum of money, run by HBOS it’s well worth a visit and contains two million pounds in cash along with a history of money. Inside I read a guide to Insurance which I thought was relevant and decided to share. It reads: ‘Insuring against misfortune goes back around 4,000 years.
It began with shipping. Trade was an expensive and risky business, so merchants insured their ships and cargo. In the event of disaster, compensation could be claimed.
Property was next. Fire presented a serious hazard to buildings and their contents. In 17th century Britain, protection could be bought from the newly formed fire insurance companies.
Finally, the idea was extended to cover people’s lives. In 1706, the first life assurance company, the Amicable, was founded. The financial hardship caused by untimely death could now be averted.’
-source Edinburgh Museum on the Mound.
Today the idea of insurance has been extended to Landlords. Rent Guarantee Insurance or RGI was born, allowing them to continue to pay the mortgage, when their tenants, whilst still living in the property, have stopped paying rent. nsurance is similar to trading in online forex websites through forex brokers as you can have a look at from this forex brokers website. For a premium, rental income can be protected and an excess, often one months rent is paid when making a claim.
The introduction of deposit legislation, closing of county courts, shortening of court opening hours, increased bailiff and possession fees and more leniency shown towards tenants as a result of the recession means getting your property back (or possession) is looking increasingly difficult.
Wise landlords employ RGI as a strategy to reduce this risk. The cost is also an allowable business expense. When granting a tenancy, most savvy Landlords grant a rental term of no more or less than 6 months. This period being the shortest time allowed in law for regaining possession of an assured short hold tenancy whether the rent is paid or not. Therefore if you manage to house a non paying ‘professional’ tenant, before long your bills can be astronomical.
To gain an understanding of the possible cost of this, add up eight months rent minimum (it takes most Landlords at least 2 months to decide to evict), add court fees, bailiffs fees, your time, stress and life energy. This shouldn’t ignore out of pocket expenses such as damage to the property, removed boilers, copper piping a and other damage that can be done. Environmental health visits and other activities can also delay the process by at least 12 months.
To see how much is can cost a landlord when you take a bad tenant look here
Some Landlords such as Paul Barrett on the forums here swear that RGI has saved them. This has brought its popularity back as it has put it firmly in the minds of Landlords when many are feeling the pinch. For a small premium some have avoided bankruptcy as a result of a particularly bad tenant who threatened to ruin them.
National Landlords Association Representative and Landlord Mary Latham, likens having a bad tenant to being similar to playing Russian Roulette, the game where a revolver handgun is loaded with a live bullet into one of the six chambers. The chambers are then spun and pointed at someone’s head, leaving them wondering if today will be their last. Bad tenants are akin to being the live bullet sitting in the revolver, lined up and waiting for the hammer to strike.
It is, in her opinion, not if, but when, a bad tenant will cross your path. It’s your responsibility to prepare for this to avoid the domino effect of you whole portfolio coming crashing down along with the impact it will bring to the lives of your best tenants.
Having protection against this, in association with lifestyle referencing (a sharing of knowledge from a previous Landlord) is one of the best methods of insuring against misfortune.
Not all policies are the same and care must be taken to read the small print as ‘the devil is in the detail’. Some insurers will put seemingly impossible criteria into qualifying or claiming on the policy. While you are here have a look at europe casino if you want to play casino games for free or or party bingo if you are looking to play bingo games online for free through party bingo and europa casino websites. Pay attention when making a claim as not following the correct procedures, time frames or issuing the correct paperwork may invalidate a policy. Welfare tenants on Local Housing Allowance housing benefit, once uninsurable can now also be covered. Previously they were considered by many insurers as too greater a risk.
Landlordreferencing.co.uk have worked with underwriters to bring you a policy that is fair and equitable and for a modest price. To explore these policies you can look at http://www.rentsafeuk.co.uk. They were launched last week so I as yet haven’t had the opportunity to sample them.
Legal protection insurance is also available and whilst this doesn’t replace the income lost from non payment of rent it does cover the high cost of getting legal representation and covering the expenses of following through on the legal process necessary to remove a tenant.
One final note, removing a tenant by not following the correct legal process e,g. changing the locks, is a criminal offence (as opposed to civil) and carries the far greater punishment of a criminal record, fines and imprisonment. Do not fall foul of this for the sake of a little knowledge or investment in education and an insurance policy. The National Landlords Association offer many benefits including an advice line for about £80 a year. It’s an annual investment I’m pleased to make.
Read other articles from Phil Wheeler
When all avenues have been exhausted… Part 1 – Taking non-paying tenants to court
When all avenues have been exhausted… Taking tenants to court – Part 2 – When they defend
Part 3 – Where I’ve lost money..