The provider of security deposit insurance to which this page previously referred readers is no longer providing the insurance. When we have found a replacement provider we will provide a link to it.
Security Deposit Insurance
Tenant's terrible deposit troubles . . . terminated !
Tenants may now be relieved from having to come up with substantial security deposits, in addition to the first (and sometimes last) month's rent when signing a new lease; often thousands of dollars. Security deposit insurance will also eliminate the often contentious waiting period to get a deposit returned.
Deposit insurance is a revolutionary new concept that allows tenants to pay a small monthly insurance fee instead of coming up with a large cash security deposit when they sign a new lease.
Landlords customarily collect security deposits from tenants to cover unpaid rent, utility bills or damages. However, coming up with security deposits is often a major financial burden for many renters that could prevent them from securing decent housing, or upgrading to something more desirable. The four to six week waiting period for the return of their deposit sometimes keeps a tenant from securing new housing when they want, or need to.
Old idea with a new application
The concept of security deposit insurance is very similar to PMI (Private Mortgage Insurance) that is available to home-buyers who do not have the 20% down payment required for most conventional mortgages.
The private mortgage insurance company performs basically the same function as a government insured FHA or VA loan. The difference between the amount the buyer is able to put down on the mortgage and the required 20% is insured by the company. The insurance fees are usually between one and two percent of the loan amount.
There are major benefits to landlords as well.
- Almost every state, and some local governmental units, now extensively regulate the amount and disposition of deposits in rental housing. The mandated administration of these security deposits ends up being a financial burden instead of benefit for the landlord.
- Property owners must comply with their state, and sometimes city and county, regulations before they can deduct money from a security deposit for repairs or default. In some states the landlord has to make their claim in court.
- In the event of tenant default in rent or a claim for damages, the insurance company pays the landlord within thirty days; no hassle, no court date, no legal fees.
- The financial health of a tenant is a primary priority for property managers. Insurance makes the tenant more liquid, which should improve their ability to pay rent on time.
No complicated red-tape like PMI
Signing up for the deposit insurance is easy. A tenant simply completes the rental application and the accompanying deposit insurance request form. A participating landlord can know if the applicant is approved and what the monthly insurance fee will be by the time they complete their normal screening process.
Fees will vary, usually from one to five percent, depending on such factors as the tenant's history and the landlords management history . Prior evictions, a poor credit report as well as other factors may impact fees. Fees are also affected by the monthly rent, condition of the property, how much the regular security deposit is, and whether the rental property is furnished or not.
Property managers love it
A major benefit for property managers and owners is that the program has an incentive payback. This insurance alternative to security deposits actually pays a percentage of its profits back to the property manager prorated for claims performance with two-year vesting. So instead of losing money managing a collection of security deposit accounts, the property manager can reduce expenses and actually generate income with this program.
To participate in the program, the property manager completes a master application which lists the number of properties, typical rent and security deposit requirements. The insurer issues a policy, and provides a starter kit that contains all the necessary forms and renter marketing materials.
When a prospective renter opts to participate in the deposit alternative program, the property manager faxes in a copy of the rental application and a coverage request form. Within minutes, the insurance agency will fax back a rate quote for that unit and renter. If the renter agrees to the quote, all they have to do is provide a checking account or credit card number, and the apartment unit is covered. It is that simple.
The tenant's incentive to pay rent and prevent damages
When a tenant buys security deposit insurance they agree to abide by the terms of the rental agreement. In the event that a default or damage claim is paid by the insurance company, the tenant is as liable as if they had defrauded the landlord. The insurance company pursues every available legal remedy to recover their loss.