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Deposit insurance emerges as possible alternative to security deposits

NYC, Real Estate Developments, Real Estate Legality

Yesterday, the New York Times discussed a growing trend in residential renting—deposit insurance. Billed as an alternative to (large) cash security deposits, this form of insurance charges a small monthly fee to tenants in exchange for paying out in the event of damages. In theory, this form of insurance could be a boon for tenants, who may lack the kinds of savings that a security deposit for an NYC apartment often entails. From a basic financial efficiency standpoint, a shift from security deposits would also be helpful, as more than half a billion dollars often sits in low-interest bank accounts at any one time to cover the city’s renters. Insurance funds could pool that money and reinvest most of it elsewhere, with the potential of higher returns. [1]

The companies pioneering deposit insurance are all fairly new, and the industry remains in some sense untested. However, in light of the new restrictions stemming from this summer’s landmark legislation in NY, which included limiting security deposits to one month’s rent, a shift in how deposits work may be on the cards. If landlords find that insurance works for their end of the bargain, new arrangements with deposit insurance at the center could be a win-win for landlords as well as tenants, all while eliminating a fairly inefficient way of storing value.

[1] Ferré-Sadurní, L. (October 2019) What if You Could Rent an Apartment Without a Security Deposit? from New York Times https://www.nytimes.com/2019/10/02/nyregion/apartment-security-deposits-nyc.html?rref=collection%2Fsectioncollection%2Frealestate Accessed October 2 2019

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