In Spain there are about three-and-a-half million empty homes, according to the latest available census. Of these, 2.8 million are in a perfect condition to be sold or rented. However, their owners harbor many doubts and fears about taking the step of renting: “What if the tenant stops paying the rent?” “What if they cause damage to the property?” To address these perfectly understandable concerns, the insurance world has managed to come up with formulas that offer owners peace of mind: “rental protection insurance”, also known as “unpaid rent insurance”.
The mechanism is simple: if the tenant defaults or even damages the home, the insurance company will cover those amounts. Each insurance company is responsible for establishing the number of monthly payments that it will cover in its conditions as well as the limits on financial compensation for damages caused.
There are several requirements to be able to access this type of insurance: the insurance companies require proof that the future tenant is not registered in any database of debtors; they also require proof of an employment contract more than one year old and that the amount of the annual rent does not exceed 40-45 percent of the net annual income. In a way, insurance companies help homeowners to make a good choice of tenant and hence minimize any risks.
The tenant, meanwhile, also benefits from this system. Typically, landlords used to ask tenants to provide a personal or bank guarantee as collateral. However, this formula was not always easy for tenants to obtain and it was also very expensive. Protection insurance is thus replacing bank guarantees to become an additional guarantee to the cash deposit stipulated by the Spanish Rent Act.
Now, more than ever, make sure you protect yourself when renting your property. The coronavirus crisis has also hit the rental market: during the months of lockdown, rent arrears rose from five to fifteen percent according to ASVAL (Rental Homeowners Association). So, if you’ve decided to rent, remember that the insurance sector offers you all the peace of mind and assistance you need.
