Security Deposit Insurance and You

in Renter News on by

By Anthony Lolli

Security Deposit Insurance and You

Security deposits. Every sitcom set in an apartment has made a joke about them at some point. (“Great, there goes my security deposit!” Cue laugh track.) But renters know that security deposits are no laughing matter. They add a significant amount to your initial move-in costs, and an equally significant amount of stress when you move out, as you worry about whether or not you’re going to get that money back.

Every market has its own local standards for security deposits. In some areas, it’s a flat fee, but in most cities, it’s equivalent to one month’s rent. In some extreme cases, it can be as high as two – and that’s not including an extra deposit for pets or any other special circumstances you might have. No matter what it’s like where you are, though, security deposits are big expenses.

Fortunately, there’s good news on the way! Security deposit insurance is already popular in many countries around the world (80% of all rental transactions in Norway use it), and now it’s finally starting to catch on here in America. This great service means big savings for you, and major benefits for your landlord.

How does it work?

Let’s say you’ve just taken an apartment for $1600/month…

WITHOUT security deposit insurance: In addition to the first month’s rent, last month’s rent, broker fee, and any other fees that might be involved, you’d have to hand over an extra $1600 for your landlord to hold on to until you move out. You’d hope to get that money back when you leave, but if you ended up breaking your lease early or you accidentally scorched the counters that time you tried to make that muffin recipe you saw online, you could kiss it goodbye.

WITH security deposit insurance: Instead of paying that $1600 to your landlord and hoping to eventually get it back, you’d pay a much smaller, one-time premium to an insurance company – typically around 20% of the monthly rent. In this case, it would be $320, for a savings of $1280 off your move-in costs!

The downside is, that payment is non-refundable. The upside is, it gets you an insurance policy that covers up to a full month’s rent–or more! Policies often cover as much as 125% of the monthly rent, which means that your $320 would buy you $2000 worth of coverage! And it’s good for as long as you stay in that apartment, whether it’s six months or twenty years.

Landlords love it

Traditional security deposits aren’t any fun for landlords, either. They have to set up separate bank accounts just to hold them, and they’re one of the biggest sources of conflict between landlords and tenants. Security deposit insurance gives them more protection than a standard security deposit, plus it means they don’t have to get into arguments, or even court battles, with their tenants when something goes wrong; they can simply file a claim with the insurance company. Happy landlords mean happier renting.

Where to get it

A simple Google search turns up a small, but growing number of companies offering security deposit insurance. The most important thing to look for is that the service you choose is backed by a reputable insurance company. For instance, I’m very proud to say that my own company, Rapid Realty NYC, is about to start offering our New York clients security deposit insurance backed by Lloyd’s of London. Your landlord may already have their eye on a service they’d like to use.

So, the next time you’re getting ready to sign a lease, talk to your landlord about using security deposit insurance. It’ll save you some major money, give them extra protection, and give you both some peace of mind.

Anthony Lolli is the CEO of Rapid Realty NYC, New York’s largest apartment rental firm. He also owns and manages more than a dozen multifamily rental properties.

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