Rental investment: does loan insurance cover unpaid rents?
You want to invest in real estate but the fear of unpaid rent makes you doubt? It is possible to protect yourself through supplementary insurance. Not to be confused with mortgage loan insurance, which does not cover the same risks…
Loan Insurance: Definition
Even if it is not mandatory when subscribing to a mortgage, borrower insurance is always required by lending institutions. In the context of a rental investment, loan insurance includes a series of guarantees whose objective is to protect the insured and the bank. In most borrower insurance contracts, the following guarantees are present:
- the death guarantee, which, in the event of the death of the borrower, leads the insurer to replace the deceased to repay the remaining monthly installments in place of the heirs;
- invalidity and incapacity benefits, which when the insured person reports a health problem or illness preventing him or her from practicing his profession and collecting income, leads the insurer to assume the reimbursement of monthly payments during the waiting period;
- the job loss guarantee, which provides financial assistance to the insured who is unemployed.
Unpaid rent and borrower insurance
In the context of a rental investment, unpaid rents represent the biggest fear of investors. Among the guarantees offered in the loan insurance, the guarantee against unpaid rent is not included. To deal with unpaid rents, investors must therefore take out additional insurance.
Guarantee against unpaid rent
Concerned that the risk of unpaid rent is a brake on rental investment, banks and insurance companies have put in place specific home insurance policies offering the possibility of taking out a supplementary guarantee called rental guarantee insurance. This insurance is for homeowners who rent their home allows to collect from the insurer financial compensation when a tenant does not pay its rents. The price of this insurance varies depending on the insurance company. It generally fluctuates on average between 3% and 4% of the amount of annual rents, including charges.