Falling behind on your unpaid rent insurance payments can create complicated situations for both the landlord and the tenant. This insurance policy, designed to protect the landlord against potential non-payment of rent and property damage, requires the timely payment of the premium for the coverage to remain active.
In this article, we’ll look at what happens when unpaid rent insurance goes into default, its legal and contractual consequences, what to do if you can’t pay, and what preventive measures you can take.
What Is Rent Insurance and How Does It Work?
Rent insurance is a policy that covers the landlord against risks such as non-payment of rent, property damage, legal assistance, and even vandalism by the tenant. Generally, the landlord is responsible for purchasing the policy, although in some cases the cost is partially or fully passed on to the tenant. For the coverage to be in effect, it is essential that the policyholder pays the agreed-upon premium with the insurance company on time.
What is Considered Unpaid Rent Insurance?
An unpaid rent insurance situation occurs when the policyholder (the landlord or tenant, depending on the case) fails to pay the premium stipulated in the contract with the insurance company on time. Article 15 of the Insurance Contract Law states that:
- If the first premium is not paid, the insurer is not obligated to provide coverage and can terminate the contract.
- If it’s a renewal premium, coverage is suspended one month after the due date if payment has not been made.
Consequences of Non-Payment
The consequences can vary depending on the timing and the terms of the policy:
- Suspension of Coverage: The insurer will not be liable for claims that occur while the policy is suspended.
- Contract Termination: If non-payment continues for more than six months, the company can permanently cancel the policy.
- Loss of Protection: If the landlord stops paying, they will have no protection to claim rent or damages through the insurance.
- Debt Collection: The insurer can demand payment of the debt even if the policy has already been cancelled.
What to Do if You Can’t Pay Your Rent Insurance
If you anticipate that you won’t be able to make the payment, it’s best to act quickly:
- Contact the Insurer to explain the situation and try to negotiate a payment plan or extension.
- Review the Policy to know the exact deadlines for suspension and cancellation.
- Avoid Being Uncovered if the tenant still occupies the property, as the risk of non-payment is still present.
In some cases, switching to a policy with more basic coverage and a lower premium can be a temporary solution.
Preventive Measures
- Purchase a rent insurance policy with a premium that fits your budget.
- Consider including the cost of the insurance in the rent price so the tenant indirectly covers it.
- Periodically review your policy and adjust coverage to avoid paying for unnecessary services.
Frequently Asked Questions (FAQs)
Can I get my coverage back if I pay after the due date?
Yes, if the payment is made within one month of the due date and the policy has not been cancelled.
What happens if I don’t pay and then a tenant defaults on rent?
The insurer will not cover the loss, and you will have to sue the tenant on your own.
Can I switch insurance companies if I have a debt with my current one?
In principle, you must settle the debt before contracting a new policy, as the insurer can report you to a bad debt registry.
Ultimately, unpaid rent insurance can leave a landlord unprotected against the most common risks in a rental contract. Knowing the consequences and acting quickly when facing payment difficulties is key to maintaining coverage and avoiding bigger problems.
If you need personalized assistance, at Entre Trámites we offer management and tax advisory services for freelancers and SMEs. You can contact us through this contact form for us to call you, or if you prefer, you can schedule a free consultation or write to us on WhatsApp.
