Renting a property is not easy, there are so many bureaucracies that sometimes even want to give up and throw in the towel, right?
Get a guarantor then, not even talk! Especially if you have moved from town and family or friends are not around to help you.
Because of the almost zero cost, the guarantor is usually our first choice when it comes to the lease guarantee or security deposit required when renting a property.
But it may not be an option for you.
When the guarantor is no longer a possibility, we must resort to other forms of guarantee that are accepted by the real estate market and are also covered by the Tenancy Law.
Along with the capitalization title for rent, the bond is one of these alternatives to the guarantor and even the cash collateral.
According to Secovi-SP indicators, in the state of São Paulo, the surety for rent already accounts for around 20% of the lease contracts, growing year after year.
If you want to understand how this type of insurance works and if this is the best lease guarantee option in your case, keep reading the article.
What is local bond insurance?
Leaseback insurance, also known as renters insurance, is insurance that, in the event of default, guarantees the owner of the property of the payment of rents and other charges assumed in the lease.
This type of insurance can be used to lease residential, commercial and non-residential real estate (offices and offices, for example) located exclusively in urban areas.
As a tenant, you will be responsible for contracting and paying the insurance with the insurer. In return, the owner will be the insured and beneficiary of the insurance, ie who will receive the compensation.
In practice, it works like this, if you need to trigger the insurance due to late payment of the rent, the insurer pays the owner the outstanding amounts, but seeks from the tenant the compensation of the compensation that had to do.
How much does the bond insurance guarantee?
Considering only the inclusion of the basic coverage, which guarantees the payment of the rent, the annual cost of the surety insurance varies between 1 and 2 times the amount of the rent.
To facilitate the bill, you may consider the additional cost of 1 to 2 rentals per year in your budget, which will be the amount paid for the insurance.
What will directly influence the price of the local bond insurance is the result of the credit analysis and registration of the insurer.
Another factor that weighs heavily is the requirement of contracting certain additional coverages by the real estate or owner.
The good news, according to the All About Insurance, is that the increasing demand for this type of insurance has increased competition among insurers, promoting a drop in prices over time.
Tenant bond insurance: advantages and benefits also for the tenant
Although it seems at first that the owner will benefit from the insurance, you can also enjoy some benefits.
Thus, we list below 5 advantages that we believe are the most relevant:
1. Do not need a guarantor: The surety insurance replaces the figure of the guarantor and you do not need the favor of anyone to rent the property. In practice, the insurer is your guarantor for all purposes.
2. More agility in the registration analysis: Once the credit and registration analysis is done directly by the insurer, you gain agility and do not waste time, contrary to what usually happens when done internally by the real estate company.
3. The cost of the insurance can be paid in installments: The insurers offer several options of payment, including making installment of the cost of the insurance through ticket, debit in checking account, credit card or directly in the ticket of the rent.
4. Progressive discounts on renewal : Just like in other types of insurance, the surety bond also provides for the granting of bonuses, ie if the insurer is not triggered, you will be entitled to discounts on the insurance payment at the time of renewal .
5. Emergency repair services: You can activate the 24-hour assistance of the insurer when you need some emergency repair on the property, as well as other useful services such as: ceiling fan fixing, water box cleaning, others.
Rental insurance coverage: what is covered and what is not covered by the bond insurance
The main objective of the lease is to protect the owner of the property against possible default on your part, either in relation to the rent or other charges assumed in the lease.
What insurance does locatícia cover?
The basic coverage , which must be included in the insurance, guarantees the owner the receipt of the rents that you leave open, in addition to the moratorium fines and the costs of a possible eviction action.
But leasing, most of the time, does not only imply the payment of a monthly rent, so some coverages were created to guarantee the other risks involved.
The main additional coverages , which may optionally be included in the insurance, are to guarantee the payment of some of the basic charges that levied on the property: condominium, IPTU, water, electricity and piped gas.
In addition to these, it also has coverages that cover possible damage to the property or delivery of the property with the internal or external paint in a different condition from the one received.
Lastly, it has the coverage that guarantees the payment of the fine for contractual termination, due to the owner in case the tenant requests the closing of the lease before the term stipulated in the contract.
What does the bail bond guarantee do not cover?
Contrary to what some people think, this is not insurance that you can trigger if you are unable to pay the rent due to illness, unemployment or any other reason.
The insurance that guarantees you this help in an eventual unforeseen is the so called secured lender. It is common for this type of insurance to be offered by banks and financial institutions.
Normally, in every lease, the tenant assumed responsibility for delivering the property under the conditions it received. In this way, it will not be the responsibility of the insurer to reimburse the tenant for the expenses that he had with the maintenance or repairs in the property.
To ensure, among other things, the reconstruction of the property, or part of it, due to a fire, explosion, lightning strike or electric damage, for example, it is ideal to take out residential insurance.
The same applies also for the other additional coverages and the fine for contractual termination. If it is due, it will be your responsibility, as a tenant, to pay the rent.
Some arguments for you to negotiate with the owner or real estate to exclude certain coverages
The coverages influence and greatly on the final cost of the insurance. The more coverages are hired, the more expensive the insurance will cost.
However, even knowing this, some homeowners and real estate agents insist on demanding, not infrequently, coverages that we consider to be unnecessary in many cases.
For this reason, let’s explore some good arguments you can use when negotiating the exclusion of one or more insurance coverages.
Water, Electricity and Gas Pipeline
In general, the delivery of the keys only happens after the verification of the transfer of the accounts of water, electricity or piped gas, which must be done together with their respective local concessionaires.
When this is done, in case of non-payment of one of these charges, the principal affected will be the tenant himself, who in addition to having the service suspended, will have his name dirty in the square.
Because of this, since neither the property nor the owner will be prejudiced in case of default, the inclusion of such coverage may become unnecessary.
Internal and External Paint
The inclusion of indoor paint coverage becomes especially important when future tenants include small children or domestic animals that, in some cases, can anticipate the need for maintenance in the painting of the property.
In the case of exterior paint coverage , it should be remembered that it can only be included in real estate of the type ‘house’. Still, in those buildings where painting is subject only to the action of time and nature, you can still try to negotiate exclusion.
With respect to damage coverage , the lower the quality of the finish of the property, the less the need for its contracting. It is also good to consider the state of conservation of the property, because the worse it is, the less will be the need for such coverage.
Fine for contractual termination
In some leases, despite having a term of 30 months, it is provided in a contract that the tenant can request the closing of the lease last 12 months without the need to pay the fine for contractual termination.
If this is your case, or if the amount of the fine is small compared to the amount of the rent, it may be possible to negotiate the exclusion of the fine for contractual termination , since you will be released from the payment at the beginning of the contract.
How to make a bond insurance bond: the complete step-by-step hiring until the issue of the policy
The hiring of bail bond insurance should always be done through an insurance broker , regardless of whether the lease is being made through a real estate agent , real estate manager or directly with the owner.
Normally, when the lease is made through a real estate agent or real estate manager, it is common to already indicate an insurance broker. If this is not the case, you will need to find a broker you trust yourself.
It is important to remember that, even in locations where everything is dealt with directly with the real estate, there will be an insurance broker responsible for brokering and contracting the insurance with the insurer.
See the step-by-step of contracting the bond insurance bond until the issuance of the policy :
1. Sending the documents: After choosing the property, you must send the personal documents and proof of income for the registration analysis with the insurer. This is done through the real estate agent or directly by the insurance broker.
2. Approval of the registration: Most of the time, the approval or disapproval of the registration is already passed in the first response of the insurer (24 hours), but may happen to request additional documents to better understand your profile or income.
3. Preparation of the proposal: Once the registration is approved, the insurance broker will continue with the preparation of the proposal. It is at this time that you will be able to negotiate with the owner or real estate agent the coverages, form of payment and the validity of your policy.
4. Elaboration of an inspection report: If coverages for damage to the property or painting are included, it will also be necessary to prepare a report containing a detailed description of the state of the property, including photos, which will serve as a reference at the end of the lease.
5. Signing of the lease: Once the proposal has been drawn up, a specific clause must be included in the lease. Among other things, it will inform you that the surety bond will be the lease guarantee of the contract. Once this is done, the lease agreement is signed.
6. Issuance of the policy: The lease contract, together with the insurance proposal and the inspection report of the property (if necessary) must be sent to the insurer for the issuance of the policy, which will occur within 15 days, after analysis of the documents and proof of payment.
Tip : The policy is the document by which the insurer signals the acceptance of the insurance and details of all its information: beginning and end of term, coverages and services included, contractual clauses, among other things.
The documents necessary for cadastral analysis and the care you should have at the moment
For the cadastral analysis with the insurer, you and the other occupants of the property must submit their personal documents and proof of income.
For those who work under the CLT scheme (who have a signed Work Card) or are civil servants, it is enough to present the paychecks or payment statements for the last 3 months.
Those with informal income, in general, will need to present the last statement of personal income tax and the detailed bank statements of the last 6 months.
Be careful and attention!
The cadastral approval is a mandatory condition for contracting the surety bond, so do not think that you have already sent too many documents, leaving aside one or another requested document.
Since the insurance price is given after analyzing the risk of default, the more information the insurer has, the better the risk analysis, and hence the pricing, the better. That is, your insurance may be cheaper .
What income is required for the lease and what is the limit of acceptable commitment?
The rental commitment accepted by most insurers is 30% of the rent, that is, you must prove income equal to or greater than 3 times the amount of the rent that is intended to be approved.
If you do not have enough income, you can include one or more people to supplement the income, even if they are not your immediate family members or who do not reside in the property.
But, first of all, it is good that they are aware that they will also commit their own income and that, in case of default on their part, they will also be called upon to honor the payments.
Term of validity and renewal of the policy
The insurance can be contracted with annual or multi-year term (more than 1 year). But, the term of validity chosen will depend on the negotiation you have with the owner or real estate, as well as other variables.
When the lease term or minimum stay in the property is more than 1 year and it is foreseen the payment of a fine in case of contract termination, insurance will probably be required with the same validity of the lease.
This is not the case when the tenancy agreement is foreseen to leave the tenant after a period of one year without payment of a fine for contractual termination, for example, where probably the requirement will be an annual insurance.
It is important for you to know that, regardless of the term of the insurance, you will need to renew the policy at the end of each cycle until the lease terminates.
Main companies in the segment
The company that has been working for the most time with this type of insurance is Porto Seguro, an insurance company that accounts for more than 90% of the policies issued in this segment, according to a recent market survey.
Other well-known insurers also offer the surety bond for rent: Grupo BB Mapfre and Bradesco Seguros (more recently).
Default: what happens if you do not pay the rent
When you make a commitment, I believe that it is not at your head, at least intentionally, that you do not honor it, especially when it comes to rent.
However, even if you can not predict the reasons in advance, you may not be able to keep up with your tenant obligations.
Because of this, it is good to know what will happen from the moment you fail to pay your rent or other charges related to the property.
When can the insurance be triggered by the owner?
As a rule, the owner can trigger the insurance from the second rent due and not paid. For this, of course, you will need to prove by documents your default.
Before this deadline, he or the real estate agent will seek a solution directly with you, that is, he will try to negotiate the payment of arrears without having to resort to insurance.
Not found a solution and triggered insurance, at a first moment, again, the objective of the insurer will be to make you pay for all amounts in open.
If this is not possible, the insurer will move on to the next step, which is to appoint a lawyer who will appeal to the court by initiating the eviction action.
It is at this time that you can negotiate the payment of arrears in installments. Despite the ease you will have, it is worth remembering that the interest and legal costs will also be included in the total debt.
If you get to that point, do not let the opportunity pass . For sometimes it may be that an atypical situation has led you to lose control of your budget and this will be your last chance to put the rent bills in order.
If you do not make any agreement, the eviction action will culminate with your mandatory exit from the property and a debt that will be charged in court by the attorneys representing the insurer and the owner.
Conclusion: Is it the best option for me?
Locatícia bail insurance is a good option when the cost is within the budget and, better yet, when there is the possibility to install the payment.
It is a good alternative also when the deposit through money (the famous escrow deposit) is not accepted by the landlord or real estate, which is getting more and more common.
Now, when your registration is not approved by the insurer or even with the approved registration, insurance becomes very expensive, it is better to seek a workaround.
One of the solutions to be considered is bond through capitalization, which has been gaining more and more acceptance among tenants, owners and real estate.
In fact, we published an infographic where we explained the difference between the surety bond and the capitalization title for rent and we listed the main advantages and disadvantages of each of these modalities of lease guarantee.