Are you a landlord and have you already heard about rent default insurance? The Spanish Rent Insurance Observatory (OESA) registers an increase in these insurance policies for non-payment of rent, consolidating against the guarantee. In fact, in Spain there are already more than 3 out of 10 landlords who have this policy to have a guaranteed rent, even if their tenants have problems to pay the rent. In this article we analyze why non-payment insurance is growing and resolve the most common doubts about this type of insurance.
What is non-payment of rent insurance?
This policy is intended to protect the owner of a rental property against possible non-payment by the tenants.
Who has to pay the non-payment of rent insurance?
The non-payment of rent insurance is underwritten by the owner of the rented property. If a situation of default occurs, the insurance covers the payment of rents during the months specified in the contract.
How much does a non-payment of rent insurance cost?
The non-payment of rent insurance costs around 4% of the annualized amount of the monthly rent. In other words, it is linked to the rent.
What does a renter’s insurance underwriting look at?
Before the insurance can be taken out, the companies ask for documentation showing the level of income or assets of those who will be using the rented property. We are talking about:
- income tax return,
- employment contract,
- rental agreement…
This is enormously beneficial for the owner of the house, since it will be the company that analyzes the documentation and its legal department will assess the viability of the insurance. If this is not possible, it is already an indicator that it is not the ideal tenant…
The previous steps necessary to be able to subscribe the insurance by the landlord, will also help him to check if the tenants are solvent.
What does the rental insurance cover?
The non-payment of rent insurance covers payment protection against non-payment of rent by the tenant (from 6 to 18 months), legal defense in case of problems with the person renting the house or apartment and vandalism damage, especially to the building.
Next, we will see the 3 causes that justify their hiring in most of the occasions:
1. They guarantee your peace of mind in the event of possible tenant default.
When we rent an apartment, we count on the income that the lease will produce. Not paying that money is an unforeseen event, with fatal consequences for our domestic economy. Thanks to the insurance you have the certainty that you will be paid, with a maximum coverage of up to 18 months.
2. They defend you against possible problems with the tenant.
The best policies in the insurance market include legal defense coverage. In this way, the company will defend us if there are problems with the lease contract or even with the neighbors.
At the same time, it will cover possible damages that the tenant has caused to the property, once he/she leaves.
3. It is a reliable alternative to bank guarantees
The market is tending towards the hiring of rental insurance. We do not say it, it says it on the website Idealistain this article entitled: “collateral vs. rental insurance”.
In addition, surely, if instead of requiring the tenant to pay a deposit or a guarantee (which in the end means to advance extra money), we contract the insurance against non-payment of rent (avoiding having to ask for that advance), surely you can rent your home sooner, since many tenants back out when, before entering the apartment, they are required to pay 3-4 months in advance.
If you think about it, if you advance the entrance of the tenants 15 days, this insurance will have been free, since the cost of the same one comes to be around 5% of the annual rent, and that is half a month of the rent.
In addition… Non-payment of rent insurance is deductible in the rent.
As we always tell our clients, it is necessary to take advantage of the few tax benefits that the Government allows us. One of them is this: the insurance of non-payment of rent is deductible in the IRPF. That is to say, we could understand that a percentage of the insurance is assumed by the Treasury.
If you want to hire insurance for non-payment of rent with the leading insurance companies, contact us. We will help you in the contracting process and, of course, if a claim occurs, our specialized department will help you in the negotiations with the company.
