The best way for landlords to protect their rental income is by taking out a good rent payment default insurance. However, before doing so, it's important to understand the essential aspects the insurance should have to be effective. In this article, we explain how landlords in Portugal can choose the right rent payment protection insurance, which will help mitigate risks when renting out their properties to tenants.
What to consider before choosing rental default insurance
In Portugal, there are various insurance providers offering rent payment default insurance with different levels of coverage. As a general rule, the more comprehensive the protection, the better the insurance. Here are the key aspects to consider before taking out rent default insurance:
Coverage the insurance should offer
Rent payment default insurance not only provides protection against tenants who fail to pay rent but also offers additional coverage that is extremely useful for landlords. These often include legal defense, which is crucial if there is a need to pursue legal action against a tenant who defaults on payments.
Duration of protection against default
When taking out rent default insurance, landlords can choose the duration of the coverage. Typically, insurers in Portugal offer coverage for six, nine, or twelve months, although some companies may provide longer coverage periods. This means that if a tenant stops paying rent, the landlord will continue to receive payments for the agreed duration.
For example, if a landlord opts for insurance with a 12-month protection period, the insurer will cover the unpaid rent by the tenant during that time. However, if the situation extends beyond the 12 months, the landlord will no longer receive rent payments.
Therefore, it’s ideal to choose rent payment protection insurance with a term that covers the entire duration of the residential lease agreement.
Tenant's solvency analysis is important
The best rent payment default insurance is one that uses all available tools to ensure the landlord doesn't have to worry about anything. Many insurers in Portugal carry out a solvency check on potential tenants to select those who offer the highest guarantees. In other words, they look for tenants who can easily pay the rent and are less likely to default.
Coverage for property damage
Some rent payment default insurances in Portugal also offer coverage for damage to the property. For example, there are policies that cover up to €3,000 for damage caused to the interior of the property by a former tenant.
Relying only on insurance providers’ offers
There are companies that offer solutions similar to rent payment default insurance. However, they do not have the backing of an insurance company but instead rely on private funds. Although these products may appear similar at first glance, they are not traditional insurance policies and are not governed by insurance regulations. This means there is less confidence that a landlord will receive rent payments in the event of tenant default. Therefore, it’s crucial to carefully examine the differences between insurance offers for homes and analyse the specifics of each option to make well-informed decisions.
Correctly choosing who is the insured party
As there is no specific regulation governing these insurance products, both the landlord and the tenant are free to assume ownership of the policy. However, it is advisable for the landlord to be responsible for the payment, as they are the one who will benefit the most. Additionally, if the tenant fails to pay the rent, they will likely also stop paying the insurance, resulting in the loss of coverage.
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