When you rent a house or a place of your property, you run the risk that the tenant does not pay the monthly payments, despite the fact that you already have experience in this type of contracts, you have references from the tenants or that you have carried out all the procedures through a trusted real estate agency. It can happen to you because the tenant simply loses his job, a risk that increases when the economy is tense. How long could you deal with defaults? Would you have the financial capacity to bear the costs of initiating legal proceedings against the tenant?
To protect against this there are the insurances of non-payment of rent, which have been booming for a few years, since they provide a plus of tranquility to the landlords of the house. As the name suggests, these policies are contracted to deal with possible defaults of the tenant of a rental home. This is just one of their coverages, they offer several more that give the landlord the assurance that he will not be in financial trouble because the tenants who do not pay him, something especially harmful if he allocates the rent money to face the mortgage.
Non-payment of rent insurance, in addition to covering the payment of rents owed up to a maximum of 12 months (some insurances offer up to 18 months), also include the claim of unpaid rents and the procedures to implement an eviction, as well as legal advice on everything you need and legal coverage in case you have to go to court. Another of the usual coverages protects against possible damages for 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 cleaning of the house. Some home insurance also offers non-payment for rent insurance coverage.
For the signing of this type of policies, normally the insurer analyzes the tenant to verify his solvency, so he can ask for several documents, such as the latest payroll, ID and copy of the employment contract. If you are self-employed, quarterly VAT returns, personal income tax return or last income tax return. They also make sure that the tenant is not on any list of defaulters (if they were, they would not be able to sign the lease).
Thanks to this previous 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 agreement should last at least a year, so you can’t 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 coverages, of course, but in general a percentage ranging between 3 and 5 percent of the annual income is paid.
If you take out rental protection insurance, it is important that you immediately report a non-payment to the insurer so that it can carry out the corresponding procedures and file the eviction claim. If the non-payment is not reported, the insurance company will not advance the unpaid rents.
In summary, a policy of non-payment of rent guarantees the lessor the collection of the monthly rent in case of not receiving the agreed rent and takes care 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.