Rent Insurance vs. Guarantor vs. Security Deposit — Which to Choose?

When renting out a property, the question of financial protection is inevitable: what to do if the tenant stops paying? There are three main protection mechanisms available in Portugal — and each has different advantages, limitations, and costs.

This article compares the three objectively to help you choose the one that best suits your situation.

How a Guarantor Works

The guarantor is a third party (usually a family member or friend of the tenant) who contractually commits to paying the rent if the tenant fails to do so. It is one of the oldest and most common forms of guarantee in Portugal.

Advantages:

• No direct cost to the landlord
• Can cover the entire period of non-payment (no time limit)
• Legally binding if correctly formalized in the contract

Limitations:

• The guarantor may not have the means to pay when needed
• The guarantor’s financial situation can change over time
• Enforcing the guarantor’s liability requires legal action — a lengthy and expensive process
• Many potential tenants do not have a guarantor available — limits the market
• The guarantor can dispute the debt and prolong the process

How a Security Deposit Works

The security deposit is an amount paid by the tenant upon moving in, usually equivalent to 1 or 2 months of rent, which the landlord can retain in case of non-payment or damages at the end of the contract.

Advantages:

• Available immediately — no need for legal action for small debts
• No cost to the landlord
• Can cover damages to the property in addition to non-payment

Limitations:

• Covers only 1 to 2 months of rent — very little compared to an eviction process of 6 to 12 months
• The tenant can claim the return of the deposit even when there is non-payment
• No legal or eviction cover included
• The legal maximum amount is 2 months of rent (NRAU)

How Rent Guarantee Insurance (GLI) Works

Rent guarantee insurance (GLI — Garantia de Locação Imobiliária) is an insurance contract paid by the landlord that guarantees the receipt of rent regardless of the tenant’s behavior.

Advantages:

• Covers 12 to 24 months of unpaid rent — adequate coverage for the eviction process
• Includes legal coverage and eviction procedure (PED) management in the best policies
• Guaranteed payment — no dependence on the financial situation of third parties
• Structured and predictable claims process
• Reduces the landlord’s stress and uncertainty

Limitations:

• Has an annual cost for the landlord (2% to 4% of the annual rent)
• Waiting period of 1 to 3 months after purchasing
• Requires a tenant solvency analysis — not all are approved
• Does not cover property damage in basic policies (additional coverage available)

Comparison: Cost, Coverage, Convenience

Cost to the landlord:

• Deposit: none
• Guarantor: none
• GLI Insurance: 2% to 4% of the annual rent

Months of rent covered:

• Deposit: 1 to 2 months
• Guarantor: unlimited (in theory), difficult to enforce
• GLI Insurance: 12 to 24 months, guaranteed

Collection speed:

• Deposit: immediate (if there is no dispute)
• Guarantor: months (legal action)
• GLI Insurance: 15 to 30 days after reporting the claim

Legal/eviction coverage:

• Deposit: none
• Guarantor: none (the landlord bears the costs)
• GLI Insurance: included in the best policies

Decision Matrix: Which is the Best Option for You?

Choose the deposit if:

• The tenant is very low risk (family member, civil servant, long previous relationship)
• The rent is low and the financial risk is tolerable

Choose a guarantor if:

• The tenant has variable income but a solvent family member available to be a guarantor
• You do not want to incur insurance costs
• You accept the risk of having to take legal action against the guarantor

Choose GLI insurance if:

• You want real protection without depending on the financial situation of third parties
• The rent amount is significant (above €600/month)
• You have multiple rented properties and want to manage risk systematically
• You are a remote landlord (expat, non-resident) and cannot monitor the process closely

In many cases, the ideal combination is: a security deposit (to cover property damage) + GLI insurance (to cover unpaid rent). The two protections are complementary.