What is Tenant Default Insurance

It's a nightmare that landlords face every day: their tenant suddenly can't pay their rent and there is no way that you can collect on the past due. You could pursue a judgment against them, but the reality is that they don't have any money anyway and so you'll be lucky to ever collect on anything. In the meantime, you're out the costs of renovating the unit for a new renter, the lost rent that is owed to you, and other costs that occur when a tenant defaults.

Or are you? With tenant default insurance, there is a way for you to be able to protect your cash flow from circumstances just like these.

How Could Tenant Default Insurance Help?

The first and most immediate benefit is that your new default insurance policy could eliminate the need of even having a security deposit for your home. How many prospective renters have you talked to over the years that went away as soon as they saw how high a security deposit was for the unit? Because policies can pay for damage that is left behind when a tenant leaves, you can shift the responsibility of collection and repairs from your shoulders to the shoulders of your insurer.

How can you pay for this insurance? For most landlords, it's easy – they simply add the monthly premium to the amount they charge for rent. It's a very affordable charge and allows a tenant to enter and leave a unit with confidence that they won't have a leech of a landlord trying to take their cash at the end of a lease! It also reduces your overall costs and time for administration tasks and ultimately makes your property stand out from all the rest.

How Much Does Tenant Default Insurance Cover?

A lot of the coverage that you'll find on this type of insurance policy is mandated by the levels you believe you'll need to cover the worst case scenario. How much would it cost for your unit to be totally renovated if a tenant left it completely trashed? That's the amount of coverage that you're going to need. In addition, many of the residential programs in this type of policy will cover up to three full months of rent if your tenant abandons the place or defaults on rent. Commercial plans can even cover up to 12 months in certain circumstances.

Depending on the insurer you select, almost every landlord is eligible for tenant default insurance. It is often used for commercial rentals and student housing, but multi-family rentals and other residential locations will benefits from it as well. Not only do you protect your income, but you'll also get added protection from unpaid expenses that you may have with a default or even legal costs that are involved with an eviction.

If you're struggling to get a good tenant into your rental property, consider adding tenant default insurance to your leasing agreement. You just might find that it is the perfect solution to the problem you have.
Posted on May 30, 2014


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