Property Rental Insurance: Peace of mind that your rental income is secure from the risk of defaulting tenants

Owning and managing rental properties comes with its share of risks, and one of the most significant concerns for landlords is the potential for tenants to default on their rent payments. In the current economic environment, more tenants in South Africa are falling into arrears according to data from the 2023 Q2 PayProp Rental Index. The percentage of South African tenants in arrears rose from 18% in Q1 2023 to 18.4% in Q2 – the highest percentage recorded since the end of 2021, although still below the peak recorded during the Covid-19 pandemic.

To safeguard their financial well-being and protect their investments, landlords and managing agents should consider obtaining rental insurance coverage specifically designed to mitigate the risks associated with defaulting tenants.

Alfred Wilsenach, Divisional Manager Underwriting at GENRIC Insurance Company, says there has been a steady uptake of Rental Insurance by landlords and managing agents in a bid to protect their rental book of business from the financial repercussions of tenants failing to pay rent, as well as the costs that come with eviction should this become necessary.

“One of the primary reasons landlords need rental insurance against defaulting tenants is to ensure financial stability. Rental income is typically a crucial aspect of a landlord’s cash flow and income, and when tenants fail to pay rent, it can lead to financial strain. Rental insurance is designed to protect the landlord for loss of rental income due to non-payment by the tenant, and provides a safety net during the time of non-payment until a resolution is reached,” explains Alfred.

“Furthermore, the process of evicting a tenant due to non-payment can be legally complex and financially draining. Landlords may incur legal fees, court costs, and other expenses associated with eviction proceedings. Our rental insurance also provides cover for eviction costs, helping landlords navigate the eviction process without bearing the full financial burden themselves,” he adds.

GENRIC’s rental insurance provides cover for:

  • A maximum monthly rental amount of R30 000 per month and covers residential property rentals from free standing houses, townhouses, clusters and flats.
  • Claims can be lodged from the 2nd consecutive non-payment by the tenant, with proof that a letter of demand has been issued and payment not received. The landlord will be covered from the first month’s outstanding rental up to a maximum of three months, or until the tenant has settled their debt or the property has been re-let, whichever is sooner. Typically, by the third month a legal recovery process would be in place to collect the arrears from the defaulting tenant.
  • Upon receipt of the rental payment/s from the tenant after an insurance claim has been settled, the landlord or letting agent would be liable to reimburse the insurer for any claims paid that have since been recovered.
  • Cover for eviction costs is provided from R10 000 up to a maximum of R40 000.
  • A valid and legal lease agreement needs to be in place with the tenant and landlord / managing agent.
  • Premiums start from 5% of the monthly rental amount.

Shereen Bagus, Divisional Manager Operational Finance at GENRIC Insurance Company further adds “The key benefit for the landlord or managing agent is to ensure that they are not left out of pocket or with cash-flow challenges due to the delays in collecting the outstanding rent, instituting eviction procedures which all carry legal costs, or while the legal collections process takes place if it comes down to that. When you consider that the monthly premium on a R10k rental would be R500/pm, it becomes very clear that rental insurance is an affordable and invaluable cover to have in place – a claim of three months’ rentals of R30 000 would be equivalent to five years of premiums, and brings massive peace of mind that you won’t be sitting with a huge dent in your cash flow and rental income. After all the thorough checks and balances are done on vetting a potential tenant, rental insurance is an invaluable additional safety net for landlords to protect their interests in increasingly uncertain and tough economic times,” says Shereen.

GENRIC has reported significant growth in niche insurance solutions, including the likes of rental insurance, as consumers and business owners look for the certainty in tough economic times.  There is a clear appreciation by consumers that any sudden knock or loss, especially one that is uninsured, could be a major financial setback that they might not recover from. Niche insurance products offer more personalised and targeted coverage for particular situations and unique risks, at an affordable premium relative to the costs of the potential risks faced.

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