Investing in rental property in Luxembourg is an excellent way to build wealth. However, the profitability of your investment depends above all on one thing: your rent being paid regularly. Faced with the risk of unpaid rent, unpaid rent insurance has become a natural step for many landlords who want to protect their rental income. We explain how it works.
Unpaid rent insurance, also known as a guarantee against unpaid rent, is a policy designed for you as a landlord. Its role is to cover the non-payment of rent and service charges by your tenant.
In addition to direct financial losses, it generally covers legal proceedings and lawyers’ fees before the competent justice of the peace in Luxembourg. In practical terms, the cover works on the basis of subrogation: the insurer reimburses you promptly for the sums due, then takes care of the legal action against the tenant itself in order to recover the funds. Please note: this insurance remains optional in Luxembourg.
As soon as a payment delay is recorded according to the due date set out in the lease, a precise procedure is triggered. The first step is a polite reminder. If the situation persists, an official formal notice is then sent by registered letter with acknowledgement of receipt. If the tenant still does not settle the debt, the claim must then be reported to your insurer within the time limits set out in your general terms and conditions. Once the file has been checked, monthly compensation is paid to you, within the limits provided for in the policy. Meanwhile, the insurer takes over the management of the legal proceedings, if necessary.
The extent of your protection depends on the option chosen, but in all cases it covers any unpaid rent and service charges owed by your tenant. Each policy provides for an overall compensation cap as well as a maximum indemnity period of cover (up to 24 or 36 months, for example). Court costs, lawyers' fees and bailiff's fees are also covered.
Good to know: many insurers offer an optional extension to compensate for material damage and repair costs identified when the tenant leaves.
Before signing, the insurer assesses the solvency and financial stability of the prospective tenant. What are the criteria? Stable and verifiable income (the last three payslips), a solid employment contract (a permanent contract or civil servant status is generally preferred), and no known payment incidents. The tenancy application file must be approved as a whole.
One useful clarification: these criteria fall under each insurer's internal policy for assessing risk, not under a legal obligation in Luxembourg.
The cost of unpaid rent insurance remains reasonable in view of the financial security it provides. The premium is generally calculated as a percentage of the annual rent, including charges. The amount varies according to several criteria: the monthly rent, the type of property (house or flat), the tenant's solvency profile, and the scope of the optional cover selected (such as cover for damage). This premium remains entirely payable by you as the landlord.
A common misconception among landlords is to think that their standard home insurance, such as non-occupying owner insurance, also covers unpaid rent. That is not the case. Traditional home insurance is designed solely to cover material damage to the building or furniture, such as fire, water damage, storm or theft. It never compensates you for non-payment by your tenant. To be properly covered for this, you need to take out an option or extension specifically dedicated to unpaid rent.
Without insurance, it is up to you to manage the entire procedure, as governed by Luxembourg law. This begins with written reminders and attempts at an amicable settlement. If communication breaks down, you must refer the matter to the justice of the peace to initiate lease termination proceedings and, at the end of the process, obtain an eviction order.
These steps often take many months, during which time rent is no longer being paid. This is precisely where insurance makes sense: it allows you to continue receiving your rental income throughout the procedure and relieves you of the administrative and financial management of the dispute.
The answer is simple: no. Unpaid rent insurance is a policy designed to protect your financial interests as a landlord, so you must be the policyholder and beneficiary.
For their part, the tenant is legally and contractually required to take out tenants' liability insurance (often included in their tenant's home insurance). It covers significant material damage that they might accidentally cause to the property during the term of the tenancy agreement.
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