With rising interest rates, debt repayments and bonds, a tenant renting your property should theoretically bring in a second income stream. The problem with tenants though, is that they’re human too and subject to the same financial woes as you are, and many pay late, if at all. Insurance companies are now offering tenant insurance for landlords.

The deposit that tenants pay prior to taking up occupancy is not considered insurance. In fact, it’s only a small insurance against damage caused by the tenant while living in the home and should not be used when a tenant defaults on his or her payment.

Certain policies have been developed to cater for defaulting tenants, so that you don’t default on your bond payments. Most of these policies see the insurer pay the rent when the tenant defaults and then collect the defaulted amount from the tenant through legal processes if necessary. These standard policies protect the landlord from successive defaults usually up to a period of three months.

If the landlord and tenant enter into a legal battle, the tenant insurance covers the landlord’s legal bills, even if such litigation leads to the eviction of the tenant. The insurance company will assist with the eviction.

While such insurance policies protect the landlord against certain perils involved in leasing a property, problem tenants make such policies only a measure of assistance. It’s worth doing proper checks and screening your tenants before handing over the keys, just in case your passive income costs you.