For a landlord renting out a property, the biggest financial risk isn't so much occasional damage as a prolonged non-payment of rent, combined with the uncertainty and cost of an eventual eviction process. Rent non-payment insurance exists precisely to cover this risk.
What this insurance actually covers
It covers unpaid rent from the tenant for a set period (up to a maximum number of months covered), and most policies also include legal defense costs needed to handle the eviction process, along with certain additional coverage depending on the policy (damage caused by the tenant, for example).
The usual requirements to take it out
Insurers typically require a prior solvency check on the tenant (verifying income, type of employment contract) before agreeing to cover the risk of that specific rental relationship, which means not every tenant qualifies for this coverage, or it may come with different conditions depending on the assessed risk profile.
The approximate cost
The cost is usually calculated as a percentage of the annual rent, varying according to the insured capital, the number of months covered, and the tenant's assessed risk profile, typically representing between 3% and 5% of the annual rent, although this can vary depending on the insurer and the specific coverage taken out.
Non-payment insurance vs. a guarantor or extra deposit
Unlike a deposit or guarantor bond (which involve an upfront outlay, either from the tenant or from a third party acting as guarantor), rent non-payment insurance is taken out and paid for by the landlord, shifting the risk to an insurer instead of depending on a guarantor's future solvency or the legal deposit (usually limited to one or two months' rent, insufficient to cover a prolonged non-payment).
Why it can be worth it even with seemingly solvent tenants
Even a tenant with a good financial profile at the time of signing can run into unexpected difficulties during the life of the contract (job loss, health problems), which is why this insurance shouldn't be assessed solely based on the tenant's initial profile, but as protection against the inherent uncertainty of any long-term rental relationship.
Compare the cost against the risk you'd take on without it
To decide whether it's worth it, compare the annual cost of the insurance against the real financial risk you'd take on facing several months of non-payment with no coverage at all, also factoring in the cost and duration of a potential eviction lawsuit without covered legal representation.
Analyze the profitability of your rental investment
Our rent vs buy calculator helps you assess the overall profitability of renting out a property, factoring in this type of protection expense as part of the calculation.