How Security Deposit Insurance Works
Security deposit insurance can help you afford those high move-in costs. But it’s non-refundable, and you may be liable for paying out claims.
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Written byLindsay VanSomeren
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8 years in insurance and personal finance writing
Former data scientist for U.S. Geological Survey
Lindsay is a freelance personal finance writer currently pursuing her Series 65 license. She enjoys helping readers learn money management skills that improve their lives.
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Edited bySara Getman
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Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.
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Up-front fees, including the security deposit, can be a big hurdle to moving into a new apartment. Property managers and landlords typically charge one month’s rent for a security deposit, ranging from hundreds to thousands of dollars.
Given that one-third of people can’t afford a $400 emergency, that’s a lot of money.
If your landlord offers security deposit insurance, you’ll only have to make smaller monthly payments instead of coming up with the cash all at once. But unlike traditional security deposits, you can’t get your money back when you move out — and that’s just the start of a long list of drawbacks to using this type of insurance policy.[1]
Here’s what you need to know about security deposit insurance.
What is security deposit insurance?
Security deposit insurance can help you get approval for a rental unit if you can’t pay the security deposit. Instead of making a large up-front security deposit to your landlord, you can make smaller monthly payments to the insurance company. If there’s any damage to the unit, unpaid rent, or other charges at move-out, the landlord can file a claim for those costs.
Not all property managers offer security deposit insurance, and when they do, they have the final say on which insurance company they use. It generally isn’t up to the renters, like it is when buying a renters insurance policy.[2] It’s also typically optional; if you have the cash, you can pay the security deposit up front.
You may see two different types of security deposit insurance. With a “true” security deposit insurance company, the landlord simply files a claim to get reimbursed for covered charges, and that’s it — renters don’t owe any more money.
But many of these policies aren’t real insurance policies at all. Even though they’re marketed as security deposit insurance, they’re actually surety bonds — the same type that jail bondsmen use. If your property manager files a claim, the insurance company will come after you to repay the funds, just like you’d have to pay the full bail price if you skip court.[1]
Traditional security deposit vs. security deposit insurance
Property managers require new tenants to pay refundable security deposits to cover any damage to the unit after they move out, trash removal fees, unpaid rent, or other costs. Typically, security deposits are about one month’s rent, but that can vary widely depending on where you live, your monthly rent, and more.
Property managers are subject to strict local laws regarding what they can do with these traditional security deposits, including when they have to return them to tenants.
In contrast, no such laws protect you when you opt for security deposit insurance.[1]
The money you pay to the insurance company also isn’t refundable; you don’t ever get that money back. If your property manager files a claim, it’s also possible for the insurance company to send you a bill for those charges if you purchase a surety-bond type policy.[3]
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How does security deposit insurance work?
Here’s a quick rundown of how security deposit insurance works:[2]
Property manager chooses an insurance company. Landlords, not the renters, choose which companies they want to work with. It’s not something all landlords offer, either.
You choose how to pay the security deposit. You can either choose to pay a traditional security deposit up front or apply for a security deposit insurance policy with the landlord’s company of choice.
You make monthly payments. You pay an ongoing small monthly fee, typically between $4 and $25 per month. The price depends on your credit history, security deposit size, location, and other factors.
You move out. If the property manager has any charges that they’d normally take out of a traditional security deposit, like unpaid rent, they’ll instead file a claim with the insurance company to receive the cash. If you bought a surety-bond type policy, the insurance company will send you a bill for the charges paid to your former landlord. It’s not taken out of the monthly payments; it’s a separate cost.
Claims under security deposit insurance
Landlords, not renters, file claims with the security deposit insurance company. Here’s an example of how it works:[1] [2]
1. You move out
The landlord will inspect the unit and compile a list of property damage that needs fixing, along with any other fees or missing rent that would normally come out of a traditional security deposit.
2. Landlord files a claim
The property manager will file a claim against your security deposit insurance policy. Pending approval, the insurer pays out the money to the landlord.
3. Insurance company sends you a bill
Some companies won’t pursue tenants for claims payments, but those operating using a surety bond model will. For example, if the landlord files a claim for $4,000, the insurer then sends you a bill for $4,000. It wouldn’t be taken out of the monthly charges you’ve already paid.
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Security deposit insurance companies
Several different insurance companies offer security deposit insurance, including:
Rhino
Obligo
Assurant
ePremium
LeaseLock
Since the landlord chooses the specific insurance company — not the tenant — you can’t save money by shopping for prices with different insurers. Credit history is one factor that insurers use when setting rates on a security deposit insurance policy, though, allowing you one possible way to lower your costs.
Security deposit insurance FAQs
If you’re confused by how security deposit insurance works, you’re not alone. Here’s some quick info that might help clear things up.
What is security deposit insurance used for?
Some landlords allow tenants to buy security deposit insurance instead of making a traditional security deposit, which can cost hundreds or thousands of dollars up front. This allows people who can’t afford an up-front security deposit to qualify for a rental.
Is renters insurance the same as security deposit insurance?
No. Renters insurance protects your personal belongings as a tenant and offers some legal protection in lawsuits. Security deposit insurance protects your landlord if you can’t put a security deposit down when you move in and then accumulate charges when you move out.
Can your landlord refund your security deposit insurance?
No. Security deposit insurance isn’t refundable, unlike if you paid a traditional security deposit up front. Furthermore, many security deposit insurance companies will pursue you for payment if your landlord files a claim against your policy when you move out, even if you’ve made all your payments as agreed.
What are the downsides to security deposit insurance?
The money that you pay for security deposit insurance isn’t refundable like with traditional security deposits. You also lose out on many legal protections, and the insurer can often send you a bill for any claims that your property manager files against your policy. Your landlord chooses which company to work with, so you don’t have your choice of insurer.
Sources
- Shelter Force. "Security Deposit Alternatives: The Misleading Marketing of ‘Renter’s Choice’."
- National Housing Law Project. "Regarding Security Deposit Replacement Products."
- Federal Register. "HOME Investment Partnerships Program: Program Updates and Streamlining."
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Lindsay VanSomeren
Lindsay VanSomeren is a freelance personal finance writer living in Suquamish, WA. Her work has appeared with FICO, Credit Karma, The Balance, and more. She enjoys helping people learn how to manage their money better so they can live the life they want.
Lindsay has been a contributor at Insurify since October 2022.
Sara Getman is an Associate Editor at Insurify and has been with the company since 2022. Prior to joining Insurify, Sara completed her undergraduate degree in English Literature at Simmons University in Boston. At Simmons, she was the Editor-in-Chief for Sidelines Magazine (a literary and art publication), and wrote creative non-fiction.
Outside of work, Sara is an avid reader, and loves rock climbing, yoga, and crocheting.