Are you a homeowner and have you already heard about the non-payment of rent insurance? The Spanish Renters' Insurance Observatory (OESA) has recorded an increase in this type of insurance against non-payment of rent, consolidating its position compared to guarantees. In fact, more than 3 out of every 10 landlords in Spain already have this policy to ensure they have a guaranteed rent, even if their tenants have problems paying the rent. In this article we analyse why non-payment insurance is on the rise and answer the most common questions about this type of insurance.
What is rent default insurance?
This policy is intended to protect the owner of a rented property against possible non-payment by tenants.
Who has to pay renter's insurance?
The non-payment of rent insurance is taken out 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 renter's insurance cost?
Rent default insurance costs around 4% of the annualised amount of the monthly rent. In other words, it is linked to the rent.
What does a renter's insurance look at for underwriting?
Before insurance can be taken out, companies ask for documentation reflecting the level of income or wealth of those who are going to use the rented accommodation. We are talking about:
- tax return,
- employment contract,
- rental contract...
This is hugely beneficial to the homeowner, as it will be the company that will analyse the documentation and its legal department will assess the feasibility insurance. If this is not possible, it is already an indicator that you are not the ideal tenant...
The steps necessary to be able to take out insurance for the landlord will also help you to check whether tenants are creditworthy.
What does renter's insurance cover?
Non-payment of rent insurance covers payment protection against non-payment of rent by the tenant (from 6 to 18 months), legal defence in case of problems with the tenant and vandalism damage, especially to the building.
Below, we will look at the 3 causes that justify their recruitment in most cases:
1. They guarantee your peace of mind in the event of possible non-payment by the tenant
When we rent a flat, we count on the income that the lease will produce. Not paying in 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 on the insurance market include legal defence cover. In this way, the company will defend us if there are problems with the rental contract or even with the neighbours.
At the same time, it will cover you for any damage that the tenant may have caused to the property once he or she has left.
3. It is a reliable alternative to bank guarantees
The market is tending towards rental insurance. We don't say so, the website says so. Idealist, in this article entitled: “collateral vs. renter's insurance”.
In addition, if instead of requiring the tenant to pay a deposit or a guarantee (which in the end means that they have to pay extra money in advance), we take out rental default insurance (avoiding having to ask them for this advance), you will probably be able to rent your property sooner, as many tenants back out when, before moving into the flat, they are required to pay 3-4 months in advance.
If you think about it, if you bring the tenants' entry 15 days earlier, this insurance will have been free, as the cost of the insurance is around 5% of the annual rent, and that is half a month's rent.
In addition... Non-payment of rent insurance is deductible in the rent.
As we always tell our clients, we have to take advantage of the few tax benefits that the government allows us. One of them is this: insurance against non-payment of rent is deductible for personal income tax purposes. In other words, it could be understood that a certain percentage of the insurance is assumed by the tax authorities.
If you want to taking out insurance against 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 specialised department will help you in the negotiations with the company.
