When you rent a home or premises that you own, you run the risk that the tenant will not pay the monthly payments. Despite the fact that you already have experience in this type of contract, have references from the tenants, or have carried out all the procedures through a trusted real estate agency. It can happen to you because the tenant simply loses their job, a risk that increases when the economy is tight. How long could you deal with defaults? Would you have the financial capacity to bear the expenses derived from initiating a legal proceeding against the tenant?
To protect against this, there is insurance for non-payment of rent, which has been on the rise for some years, since it provides an extra peace of mind to landlords. As the name suggests, these policies are contracted to deal with possible defaults by the tenant of a rental home. This is just one of their coverages, they offer several more that give the owner the assurance that he will not be in financial trouble due to the tenants who do not pay him, something especially harmful if he uses the rent money to face the mortgage .
The non-payment of rent insurance, in addition to covering the payment of the rents owed up to a maximum of 12 monthly payments (some insurances offer up to 18 months), also include the claim of unpaid rents and the procedures to initiate an eviction, as well as legal advice on everything you need and legal coverage in case you have to go to court. Another common coverage protects against possible damage due to vandalism incurred (with a predetermined money limit) by the tenant.
Some insurances offer additional coverage, including assistance in breakdowns, claims to other insurers for damages, locksmith and lock change expenses, non-payment of supplies, emergency repair service and house cleaning. Some home insurances also offer unpaid rental insurance coverage.
For the signing of this type of policy, normally the insurer analyzes the tenant to verify their solvency, so it can ask for various documents, such as the latest payroll, ID and copy of the employment contract. If you are a self-employed worker, quarterly VAT returns, personal income tax return or last income statement. They also make sure that the tenant is not on any delinquent list (if he is, he will not be able to sign the lease).
Thanks to this preliminary study, it is not necessary for the tenant to pay a deposit or present a bank guarantee. Another condition for signing the contract is that the amount of the annual rent must be less than 45 percent of the annual income received by the tenant. And the rental contract should last at least a year, so you cannot hire it if you rent for days or months.
How much should the landlord pay for this type of insurance? It will depend on the coverage, of course, but in general, a percentage that ranges between 3 and 5 percent of the annual income is paid.
If you take out rental protection insurance, it is important that you immediately notify the insurer of a non-payment so that it can take the corresponding steps and file the eviction claim. If the non-payment is not reported, the insurance company will not advance the unpaid income.
In summary, a non-payment of rent policy guarantees the lessor the collection of the monthly rent in case of not receiving the agreed rent and takes charge of the necessary legal defense and the economic and material damages. At the same time, it is interesting for the tenant, since it avoids having to advance several months of deposit or sign a bank guarantee.