The concept of unpaid rent insurance can be frightening for landlords, but on closer inspection, it is not that complex to take out such insurance. In fact, it can be very beneficial! In this article, we will explain it all to you: what is the unpaid rent insurance? How does it work? Why is it interesting to subscribe to an unpaid rent insurance? Follow the guide !
1. What is the unpaid rent insurance ?
The unpaid rent insurance is an insurance intended for the lessors and the rental investors. It allows them to protect themselves from unpaid rents by their tenants. Indeed, in case of default of the tenant(s), the LMI insurance takes in charge the unpaid rent(s). This allows landlords and rental investors to avoid the risk of non-payment of rent by their tenants.
The main types of LMI insurance
There are different types of LMI insurance. The most common are 100% LMI and 90% LMI. There are also partial LMI policies, which only partially cover the risk of non-payment of rent by tenants. In general, the higher the coverage amount, the higher the cost of the insurance.
There are also specific LMI insurances for certain categories of tenants, such as students or people in precarious situations. These insurances are often proposed by social organizations or charities. They aim to allow landlords and rental investors to rent their property to people who cannot necessarily afford to pay 100% LMI insurance.
What LMI insurance covers
In general, LMI insurance covers three types of risks: death of the tenant, loss of employment of the tenant and illness of the tenant. Some LMI policies may also cover other risks, such as the tenant's pregnancy or termination of employment for gross misconduct. It's important to know what risks are covered by your LMI insurance before you purchase a policy. You can seek advice from an insurance broker or directly from your insurer.
Why buy LMI insurance?
Buying LMI insurance has many advantages for lessors and rental investors. Indeed, it allows:
to protect against risks related to non-payment of rent by tenants;
to be a precious help in case of temporary financial difficulties of the tenant(s);
a cover for the expenses related to the administrative and/or legal steps engaged by the owner;
coverage for the cost of damage to the property.
Taking out LMI insurance is therefore an excellent way to protect yourself against unpaid rent and to ensure the smooth running of your rental business.
2. What are the steps to follow to subscribe to an unpaid rent insurance ?
In France, it is mandatory to subscribe to an unpaid rent insurance for any furnished rental. This insurance allows you to protect yourself in case of non-payment of rent by the tenant or in case of damage to the rented accommodation. Here are the steps to follow to subscribe to an unpaid rent insurance:
Choose the type of insurance
There are 2 types of unpaid rent insurance. The first is more adapted to the owners who wish to be covered in the event of non-payment of the rent by the tenant. The second type is more adapted to landlords who wish to be covered in case of damage to the rented property.
Identifying the necessary guarantees
Once the type of insurance has been chosen, it is necessary to identify the necessary guarantees. To do this, it is important to take into account the nature of the property (apartment, house, etc.), its age and its geographical location.
Compare the offers of the insurers
There are many insurers on the French market offering unpaid rent insurance. It is therefore important to compare the different offers in order to find the best insurance at the best price. Don't hesitate to ask for several quotes from different insurance companies, and choose the rental insurance that suits you.
Subscribe to an unpaid rent insurance
Once you have found the offer that best suits your needs, you can subscribe to an unpaid rent insurance policy with an approved French insurer. You can subscribe online or in an agency.
3. What to do in case of unpaid rent ?
It's every landlord's worst nightmare: you come to collect the rent from your tenant, only the tenant doesn't have the money to pay you. While this is a situation no one wants to be in, it's important to know what to do if it happens. Here are four steps you can take if your tenant doesn't pay rent.
1. Contact your tenant
As soon as you realize that your tenant hasn't paid rent, the first thing you should do is contact them and try to resolve the problem. There may be a very good reason why he or she is unable to pay, such as the loss of a job or temporary financial difficulties. If you can work out a solution with your tenant, it will save you a lot of time and hassle in the long run.
2. Send a demand letter
If communication with your tenant is not working, or if they stop responding altogether, your next step is to send them a demand letter. This is a formal notice that they have a certain amount of time (usually 8 days) to pay what they owe before possible legal action. Once you have given them the notice, keep a copy for your records.
3. Eviction file
If your tenant has still not paid rent or vacated the premises after receiving a notice to vacate, your next step is to file an eviction application. This is a legal process that will give you possession of the property and allow you to remove the tenant from the premises. The eviction process can be costly and time consuming, so make sure you have really exhausted all other options before taking this step. Note that the landlord cannot handle the eviction of the tenant himself. If he does so, he risks a 30,000 euro fine and up to 3 years in prison.
4. Consider debt collection
Once you have finally regained possession of your property, you may want to consider pursuing debt collection against the tenant, as often the security deposit is not enough to cover the debt. This will involve hiring a debt collection agency or bailiff to track down the tenant and get them to pay what they owe you. It is important to note that debt collection can be very difficult, and there is no guarantee that you will be able to recover the money owed to you.
There you have it, you now know all about unpaid rent insurance! If you have rental properties or are thinking of investing, it is strongly recommended that you take out unpaid rent insurance: this will allow you to sleep soundly without fear of unpleasant surprises. So don't wait any longer and choose peace of mind!