What is a security deposit bond?

Security deposit bonds

You found the apartment of your dreams. But the security deposit is not dreamy at all.

You get why landlords want the money up front. If renters trash the place before moving out, landlords need cash to repair any damage. But you would rather use that up-front money to buy some dishes, a worthy coffee maker and a couch that you’ll actually enjoy sitting on.

A security deposit bond might be your answer. Even though these bonds cost just a fraction of the amount of your security deposit, many landlords will accept them as a full security deposit.

How does a security deposit bond work?

A security deposit bond is an agreement among three people or parties:

  • principal—that’s you, the person renting the apartment
  • An obligee—your new landlord
  • surety company—this is where you buy the security deposit bond

If the landlord wants a security deposit of $800, you might buy a security deposit bond for just $100. When you move out of the apartment, if you owe the landlord for any damaged property, she can file a claim with the surety company. This is the reason your landlord is willing to accept the bond instead of the deposit in the first place—because she knows that the surety will reimburse her for her loss (instead of drawing from your deposit).

But that’s no excuse for you to run amok in the place. Because after the surety company pays the landlord on your behalf, they’ll turn to you and bill you for the money.

I am the perfect tenant and I will leave my apartment spotless. Do I get a refund?

No. The $100 you paid for the security deposit bond is not refundable.

How is a security deposit bond different from renters insurance?

A security deposit bond is not insurance. The main beneficiary is actually your landlord, though it’s a major boon to you too and allows you to move in without having to shell out hundreds and hundreds of dollars. It protects your landlord against financial loss (the amount of your bond) after you move out. And spares them the hassle of coming after you for the money.

By contrast, the main beneficiary with renters insurance is you. Renters insurance covers your own belongings against theft, damage or loss. These policies also include liability protection. This helps you to pay medical bills for someone who is injured while visiting you or for damage you accidentally caused to the apartment itself, such as scorched walls after a fire in the kitchen.