There’s more to security deposits than collecting a bunch of cash from renters and squirreling it away in an escrow account. You and your renters have options when it comes to satisfying your security deposit requirement. In addition to the standard cash deposit, you’ve got security deposit replacements and security deposit insurance to choose from as well. 

With security deposit insurance, your renters decide what works best for their budget, and your properties get true-blue coverage and protection against the unexpected. But how exactly does security deposit insurance, and other deposit alternatives, work, especially in contrast to a cash deposit? 

Read the full guide to security deposit replacements

Quick recap: What are security deposits?

Per the folks at Merriam Webster, a security deposit is “an amount of money that a renter pays when beginning to rent property (such as an apartment) and that can be used to pay for any damage that the renter causes to the property.”

Three reasons why you should ditch cash security deposits

There are a few things to know about cash security deposits and why you should replace cash deposits with a different option.

Cash deposits have their limits

Cash security deposits have their limits — literally. Specific states have maximum security deposit amounts, while others have zero limits whatsoever. In turn, this impacts and potentially limits the degree of protection that a cash deposit can offer.

Cash deposits are a pain to store

Laws regarding the holding and storage of security deposits vary from state to state. A good chunk of the fifty states requires landlords to hold cash security deposits in a deposit-specific, separate bank account or an escrow account. Keep in mind; some states require you to store deposits in an interest-bearing account.

Cash deposits require documentable reasons for withholding

You can’t hold a security deposit for everyday wear and tear. You can only apply security deposits when there are instances of veritable excessive damage. For example, all of the below are instances that you may hold or keep a security deposit:

  • Extreme damage that warranted professional services.

  • Loss of rent.

  • Breaking of the lease.

Know your options: Get the guide to security deposit replacements 

How can I replace a security deposit? 

Security deposit insurance is based on the surety bond model — security deposit insurance provider protects the property owner or manager who enters into a contract with renters. It’s worth noting that security deposit insurance is always optional for your renters. 

Security deposit replacements offer an element of protection as well. However, security deposit replacements are required (not to mention binding), so renters often don’t know that they’ve signed up.

Do I need a deposit replacement or security deposit insurance?

We know what the real question is here — well, two come to mind: “what’s the best option for my property?” and “how can I safeguard my bottom line and NOI?” 

You need a security deposit option that protects your property and helps you attain your goal NOI. And we hate to say it, but there’s no one golden ticket because there are pros and cons to each option.

To learn more about how exactly security deposits, security deposit replacements, and security deposit insurance work, read the full report “Property Manager’s Guide to Security Deposits.”

Download the full report

Headshot of Monique Seitz-Davis
Monique Seitz-Davis

Monique Seitz-Davis, also known as Moe, is a senior writer at Rhino. Moe thinks glitter gets a bad rap and that security deposits are a trap. Or something. She is doing her best.