Eviction insurance

Eviction insurance is a landowner’s first defence against a non-paying tenant. Eviction insurance premiums must more or less reflect lease default rates, and so it might not save a lot of money in the long run. However, if a landlord can’t afford a tough eviction, but can afford eviction insurance premiums, insuring the risk can help them avoid cash flow disasters that are tough, or even impossible, to recover from.

Property management companies, who operate a property on behalf of the landlord, may offer the landlord “eviction” insurance to cover the income lost from a tenant who can’t pay their rent, and are subsequently evicted. But this is more like a savings account that real insurance. Landlords could just as well do this themselves, saving money every month to draw upon in case of an eviction. It is best to assess whether it is worth obtaining insurance by a property management company, or whether it is a waste of money.

Another kind of eviction insurance is for “wrongful eviction,” in which the landlord evicts a tenant, who sues the landlord because the eviction was unfair. In this context, “wrongful” will refer either to the lease, a statutory violation (e.g. racial discrimination), or some other claim that has a legal standing. The insurance protects the landlord for the cost of defending such claims or paying them. This is a legitimate type of insurance.

Last of all, there is “mass tenant relocation,” in which a landlord’s property is no longer habitable for some reason, and the tenants have no choice but to move out. This could happen because of landlord’s negligence (e.g. oven not repaired). If an action at law forces the landlord to pay the tenant’s cost of finding a new home, then the cost may be paid under “mass tenant relocation” coverage.

It is also recommended to have household insurance when renting your property out to a tenant, because you will not physically be on the premises all the time. Tenants also don’t always have the sense of responsibility for the home similar to that of the owner and through misuse and negligence, damages can lead to a cost of thousands. Having insurance can safeguard landlords against many of these damages.

There are several factors to consider before deciding to seek rental insurance. Insurance products may sometimes appear to be the solution to secure a landowner’s cashflow, but they do come with the risks of extra vacancy and legal costs, both of which are relatively easily avoided by effective property management.

See related resource: Eviction procedure in South Africa.