Has anyone any experience of Deposit Replacement Insurance?

Home Forums Legal Matters and Tenancy Agreements Has anyone any experience of Deposit Replacement Insurance?

This topic contains 4 replies, has 3 voices, and was last updated by  jdc 4 months, 3 weeks ago.

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  • #1042

    Sarah
    Keymaster

    I have only just heard about these schemes, in which the tenant pays for an insurance policy which replaces the need for a deposit, as it covers all the items usually covered by a deposit and more.
    The most common reasons given in a recent survey for landlords withholding some or all of a deposit were failure to leave the property clean (88%), failure to maintain the property, usually the garden (44%), direct damage to the property (39%), unpaid rent (31%), damage due to carelessness or neglect (29%), and tenants leaving items of their belongings behind (12%). Obviously, insurance schemes will vary in their provision, but most will cover the above, plus legal costs if a tenant has to be evicted.
    We must be clear that Deposit Replacement Insurance is different to the insurance-based deposit protection schemes, where the landlord requires a deposit from the tenant, but retains the deposit in their own keeping and pays an insurance policy to protect it.
    The advantage of Deposit Replacement Insurance is that the tenant would not have to find an additional sum for the deposit at the start of the tenancy – typically the equivalent of 4-8 weeks rent – but would pay a much smaller sum, either as a one-off payment or on a monthly basis.
    One insurance company is quoting these figures:

    Prices (excluding 10% IPT):
    £130 (Rent amounts from £0 – £450.99)
    £166.88 (Rent amounts from £451 – £649.99)
    £257.60 (Rent amounts from £650 – £999.99)
    £386.40 (Rent amounts from £1,000 – £1499.99)
    £515.20 (Rent amounts from £1500 – £1999.99)
    £772.80 (Rent amounts from £2000 – £2999.99)
    £1030.40 (Rent amounts from £3000 – £3999.99)

    The disadvantage to the tenant is that this payment is non-returnable. However, there is no detriment to the tenant if the landlord has to make a claim under the policy.

    The advantage to the landlord is that the property can be advertised as not requiring a deposit (although I think it would be ethical to be clear at the outset that a one-off insurance payment is required), additional risks are covered, and the claim process is said to be easier for the landlord than dealing with other deposit protection schemes.

    However, it may be that the insurance only covers assured shorthold periods, not periodic tenancies, and insurers are likely to require that a good quality inventory is provided at the start of the tenancy and that there are regular inspections of the property.

    This looks interesting – but does anyone have any experience of these schemes, and the impact on tenants and landlords?

    #1885

    jdc
    Moderator

    Just looking at an interesting report from Generation Rent about these insurance schemes.
    http://www.generationrent.org/making_deposits_work_for_tenants
    They make the point that whereas deposits should be fully refunded at the end of the tenancy if there is no damage, the insurance premium is not refunded but a once for all cost making the tenancy more expensive for the tenant ultimately. Also some schemes leave the tenants liable for damages. Generation Rent also questions whether it will be a way for letting agents to earn substantial commission on selling these policies to offset a ban on charging tenants fees.
    http://www.cityam.com/290203/death-deposit-new-type-rental-model-emerging-but-could-next

    #1921

    jdc
    Moderator

    Report from Which? concludes that the deposit system is forcing tenants into debt because of delays in refunding deposits and deductions at the end of a tenancy.

    Which? claims broken tenant deposit system is forcing tenants into debt


    However, a representative of one of the deposit schemes pointed out that the deposit insurance could end up costing long term tenants more than a deposit would. Are the figures for cost of insurance one off or if the tenancy becomes a periodic tenancy at the end of 12 months, are they payable each year?

    Also cost is quite high – over 25% (£257.60) for a monthly rent of £999/month. If that were payable yearly, the cost would mount up although the initial cost to the tenant would be lower.

    #1961

    Roni Moran
    Moderator

    I found an article from 2017 in The Guardian which is interesting. https://www.theguardian.com/money/2017/jun/10/deposit-free-renting-will-tenants-lose-out
    It seems it can work in various ways. There are insurance schemes like DLIGHTED where the landlord pays for the insurance not the tenant. At the time the article was written, it cost £129 per year to be covered up to £7500 per month where the monthly rent is up to £2500. If there were damages claimed by the landlord and paid out by the insurance company the insurance company would chase the tenant for the costs. Then there are insurance schemes where the tenant pays, like ZERO DEPOSIT SCHEME. This scheme charges one week’s rent and then a £25 admin cost each subsequent year. Landlords are covered for six weeks rent etc. Again, any successful claims by the landlords would eventually have to be paid back by the tenant. Another scheme REPOSIT is said to be more like a warranty and the tenant pays a non-refundable fee, the equivalent of one week’s rent. As they prove their reliability over time, the fee they pay reduces. As per normal, the tenant is liable for any damages at the end of the tenancy, with disagreements sorted out by a dispute resolution service. Reposit claim the money from the tenant and pass it on to the landlord.
    From what the article says, Generation Rent aren’t in favour of these schemes because of the tenant being chased by the insurance company for any money paid out.
    So the tenant is liable to pay for damages in any case either by losing some deposit or by paying back the insurance company. The difference is with a deposit system, the damages are generally limited to the amount of the deposit whereas they might be higher under an insurance scheme.
    But as the insurance premiums are non-refundable, insurance does work out more expensive, though cheaper the longer you are in a property with some policies / schemes at least. And it might not be as expensive as borrowing money to pay for a deposit if you were paying interest on the loan.
    The landlord policy is interesting. I wonder if the tenant has to agree to it – given they could end up paying more than a deposit would have been if there is serious damage done.

    #1996

    jdc
    Moderator

    Report just out from the House of Commons library on Tenancy Deposit schemes.
    http://researchbriefings.files.parliament.uk/documents/SN02121/SN02121.pdf
    This touches on a snag with the deposit replacement insurance schemes – if a landlord/ letting agent is expelled from a scheme, their tenants could not use the scheme to recover their deposits. Theoretically the landlord was required to reprotect the deposits but if he failed to do so, the tenants would have to take legal action to recover the deposit.

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