Security Deposit Insurance Getting New Attention

With renter budgets tightening, the traditional security deposit is beginning to give way to deposit insurance. Deposit insurance is a new breed of security deposit, which traditionally has protected apartments from damage by encouraging residents to practice good housekeeping. The indemnity paid in monthly installments has become an alternative to up-front deposits that have been the bane of renters and landlords. Traditional deposits due in full at lease signing are sticking points that, sometimes, put residents and landlords at odds when a lease is broken, or the apartment vacated. A property manager justifiably citing damage to the apartment or lost rent may keep the deposit to offset all or some of the cost. A resident may balk at the $300-$500 deposit and walk away, costing the property much-needed revenue. Deposit insurance, which is a low-cost insurance policy, strikes a happy medium and keeps billions of dollars circulating in the economy rather than being tied up for years, proponents say. Recent legislation is discouraging property managers from taking up-front deposits and holding the money until the end of the lease in favor of low-cost options for renters. In January, the Cincinnati City Council passed a law that requires landlords managing 25 units or more to offer residents an alternative security deposit versus a cash payment. Along with a reduced security deposit tied to the monthly rental rate, the options included deposit insurance. New York has joined 10 other states and Washington, D.C., with a law that limits security deposits to no more than one month’s rent. And Virginia is proposing a measure that ensures renters will have multiple options to pay deposits. Other states are considering similar legislation. In light of COVID-19, more light has been cast upon the estimated $45 billion that is locked up in residential security deposits. Lawmakers argue that the tidy sum is money that could be spent to fuel the econo...