Surety bonds vs. lease insurance: what’s the difference?
Traditional security deposits can be stressful and cost-prohibitive for renters. Collecting those deposits is also tedious for property managers, and can even cause them to lose out on great residents who aren’t able to fork over hundreds (or thousands) of dollars just to sign a lease.
As more properties recognize these problems, offering residents an alternative to a standard deposit is becoming a more common practice. But not all deposit alternative products are the same.
In general, these products fall into one of two categories: surety bonds (like Jetty’s) and lease insurance.
While both types of products lower move-in costs for renters and add protection against damage and lost rent for properties, they accomplish these goals in very different ways. In this post, we’ll get into what those differences are, and what those differences mean for both renters and properties.
One of the biggest differences between surety bonds and lease insurance is in their pricing models.
With a surety bond, the renter pays one low fee, and they’re covered for the duration of their lease, no matter how long they stay in the unit. In Jetty’s case, this fee is 17.5% of the deposit amount. So, for example, if the property wants $1,000 in protection, the renter will pay an up-front fee of $175 for the policy.
With lease insurance, the renter pays a monthly fee to the provider for as long as they live in the building. These fees can be as low as $20, meaning that the move-in cost looks, on the surface, much cheaper than a surety bond. Over the course of a 12-month lease, however, that $20/month adds up to $240—and it doesn’t end there unless the renter moves out. A renter who stays for two years will pay $480, a renter who stays for three will pay $720, and so on.
The renter is essentially paying a monthly, mandated “rent tax” in perpetuity. Plus, that extra premium doesn’t provide any extra protection for the property—only extra revenue for the provider.
“Admitted” insurance products, like Jetty’s surety bonds, must be reviewed and approved by the Department of Insurance in each state in which they’re sold. Getting a product admitted is a rigorous process, and means that it will be held to the highest risk standards. It also ensures that the consumers and businesses who rely on them will never have to worry about carrier default or unpaid claims.
Some lease insurance products, on the other hand, operates outside of this regulatory framework. This means that providers are free to change their products at any time, potentially leaving both properties and renters at risk. It also means there’s no backup in place in the event that the provider is unable to pay claims.
When a property offers renters the option to purchase a surety bond, it’s ultimately up to the renter whether to make that purchase or pay a traditional deposit. Each renter is able to make an informed choice, and retain control over how they’re spending their money. This creates good will between renters and the property, which helps with both retention and reputation management.
Other deposit alternatives can be mandated by buildings, means that residents can be forced into purchasing something they don’t want or need. And in many cases, residents aren’t even told what, exactly, they’re purchasing—leaving them confused about what they’re paying for, and caught off guard by extra charges on their monthly rent bill.