Security deposit insurance

Security deposit insurance – unlock your money!

Rental security deposit isn’t mandatory, however, it usually is required

Although submitting a deposit at the beginning of the tenancy period isn’t required by law, numerous property owners opt for it. Swiss Code of Obligations (Obligationsrecht - OR) allows lessors to demand a rental guarantee equal to one- to three-month rent.

A bank deposit is a traditional method of paying such a guarantee. Lessee deposits the amount on an escrow account unavailable neither to them nor to the lessor during the rental period.

Bank tenancy deposit – a potential decrease of your accounting liquidity

Suppose you’re moving into a bigger flat. A few years back, you had to deposit a three-month rental guarantee on an escrow account for your previous apartment. Now you have to deposit another guarantee, equal to a three-month rent. This time, however, the monthly rent is a bit higher as the flat is bigger, and rents generally have increased. If you haven’t yet regained your surety deposit from the previous lessor, you may quickly fall into financial troubles. After all, all this means you need to own and freeze a few thousand CHF in cash for a certain time.

When moving, every franc counts: money is needed to pay a removal company, clean the flat, buy new furniture and appliances and many other things necessary for a new home. A way to unfreeze money intended for the deposit would be very handy. Security deposit insurance gives you that opportunity.

What is security deposit insurance?

Security deposit insurance is a kind of surety granted by an insurance company regarding a deposit. If you cause damage in a rented flat, the insurance company will return the money to the lessor to the extent that the claim is viable (which is verified by the insurance company). Even if you don’t pay rent, the lessor will receive the insurance money.
 

After the lessor gets the compensation, further steps are taken: the insurance company checks whether you have to pay for the damage on your own or if it will be covered by your private liability insurance. The property owner doesn’t have to concern himself with all these arrangements and receive the money regardless of their result.

Bank deposit vs security deposit insurance

Safety

Bank deposit and security deposit insurance give the lessor exactly the same protection. In the case of a bank deposit, the lessor can’t access the money on an escrow account anyway. It’s locked for a few years. In the event of a claim, the lessor can access the rent guarantee just as easily with a bank deposit as with security deposit insurance. Therefore, there’s no reason for lessors to prefer a rent guarantee in the form of a bank deposit.

 
Costs

Contrary to a bank deposit, rental security deposit insurance entails costs. This may be considered a disadvantage, however, annual premiums aren’t too high. They usually are around 4% of the deposit. It’s not much for the ability to freely dispose of your own deposit money.

Service

Bank deposit is free of charge and thus comes without any additional services, even though they could be necessary in some cases. Thanks to security deposit insurance, you’re not alone in case of damage. The insurance company automatically checks whether damage could be covered with your private third-party liability insurance. It also helps estimate which of the lessor’s claims are viable.

But that’s not all. If you deposit the money into a bank, you can only make payments and lock the account. With security deposit insurance, you enjoy benefits already at the stage of searching for a perfect flat. Before you even pay a rent guarantee, you can ensure your potential lessor that can afford it. Everything can be quickly and easily requested online. After you provide all the necessary information, the insurance firm will assess your creditworthiness. If the result is positive, preliminary confirmation will be issued. You pay no fee for this service and receive the document by post or e-mail.

Flexibility above all

Have you already made a transfer to an escrow account? You can always close the account and take out security deposit insurance. Before you do it, however, discuss it with the lessor and ask for their approval. As the security level doesn’t change, it shouldn’t be a problem in most cases. You can do it any time and unlock the security money deposited at a bank.