Lease insurance has proven to be a win-win for operators and residents, allowing both to have enhanced financial security.
The post-pandemic surge in housing supply has softened demand and increased competition in key markets nationwide. The industry has responded by increasing marketing spend to attract renters and offering concessions to sign leases, placing increasing pressure on profitability.
Walking the line between affordability for renters and profitability for operators is a delicate balancing act under all market conditions. Housing attainability remains a primary issue for many renters, though concessions aren’t a sustainable option for operations. Proactive operators are looking beyond standard industry constructs for a better solution, and many have found the answer in lease insurance.
Lease insurance—which replaces restrictive upfront deposits with modest monthly payments—plays a pivotal role in improving housing attainability while also meeting renter preference for a subscription model. The antiquated deposit model causes unnecessary friction during the application process and leaves properties exposed to rent loss and damage. Lease insurance eliminates deposits to streamline leasing and recapture revenue, neutralizing bad debt.
Integrated with property management software, lease insurance mitigates bad debt by predicting risk and optimizing coverage for each property. Incorporated into the native workflow, lease insurance limits revenue loss by extending coverage and absorbing final account balances— including property damage, unpaid rent and legal expenses.
Impact on Affordability
Rental rates aren’t the only financial hurdle facing renters. Upfront security and pet deposits pose an obstacle for many renters and further complicate affordability. Lowering the financial barriers to entry opens more doors for qualified renters, who otherwise fit other renter obligations. Replacing upfront security and pet deposits with lease insurance expands renters’ housing options and qualifies them for residency at more communities.
Many renters have the monthly income to pay their rent and other associated fees but lack the available funds to place toward a deposit. Pet deposits only increase the limitations. Since deposits face the possibility of being nonrefundable, renters also prefer avoiding the risk of never receiving them back. Conversely, lease insurance is paid as a reasonable monthly fee, allowing renters to establish monthly budgets without the stress of an additional upfront payment.
Financial predictability is invaluable to renters and operators alike. For residents, the ability to retain their savings provides a cushion in the event of unforeseen expenses. For operators, the peace of mind in knowing their assets are fully protected alleviates bad debt concerns and apprehension over deposit limitations.
Impact on Attainability
By removing the financial barrier presented by deposits, operators significantly expand their prospect pool. Properties can consider a broader range of qualified renters. Revisioning prospect screening protocols enables operators to reevaluate prospect qualifications without exposing themselves to greater risk.
When renters don’t have to account for the expense of an upfront deposit, they can expand their home search criteria to a higher monthly rent range. That means the ability to search for homes in more desirable locations, with larger floor plans or enhanced amenities and property features. Rather than being confined to a specific submarket or property type, renters with sufficient monthly income can seek out homes where they prefer to live rather than where they could previously afford after paying a deposit that is unlikely to be refunded in full.
Lease insurance promotes inclusivity and diversity by extending housing access for marginalized or financially vulnerable groups that are excluded by a deposit requirement. And by expanding the prospect pool, operators foster more diverse communities.
What Operators are Saying
CORE Realty Holdings Management, LLC first discovered lease insurance in 2018 during its effort to streamline leasing and improve accessibility for renters. The company identified security deposits as the primary culprit behind the challenges it faced and sought a complete replacement to the deposit system.
Marc Raskulinecz, Executive Vice President of Property and Asset Management at CORE, said the switch to lease insurance expanded the company’s prospect pool while also enhancing property protections. Six years after implementation, he said the benefits of lease insurance are more prominent than ever.
“With the economy changing—even with rents [stabilizing]—everything is more expensive. People are challenged with available cash on hand,” Raskulinecz said. “Veering away from the one month’s upfront rent deposit removes a barrier to move in, and the monthly charge better aligns with how residents already budget. Lease insurance was a chance for us to expand protections without causing financial hardships for new residents moving in.”
Property teams using lease insurance have witnessed the simplification of move-ins with no upfront deposit to collect and process and move-outs with the absence of deposit refund disputes with former residents. Deposit-free renting allows for an easier move-in and move-out experience for renters and onsite teams. Lease insurance gives both parties the peace of mind once move-out happens, knowing there is a safety net of sorts through the insurance coverage and policy. Lease insurance also transforms bad debt recovery practices for operators.
“The last I looked at our collection agency performance, we were collecting about 12%. With lease insurance, we’re recovering the majority of our bad debt,” Raskulinecz said. “We try to collect directly from residents for the first 30 days, before filing a claim. But once our managers initiate the process with our lease insurance provider, we’re seeing claims returns within two weeks.”
Innovations and Trends
Artificial intelligence (AI), machine learning and trained-model solutions are enhancing the protections created by lease insurance. The insights from advanced technologies empower informed decision making to optimize risk mitigation.
The use of AI in insurance technology (insurtech) produces more accurate forecasts for rental housing assets, significantly advancing underwriting, claims processing and fraud detection. The forecasting precision enables operators to expand their prospect pools with confidence, while also expanding housing access and attainability for renters.
States are also taking aim at rental housing affordability by imposing security deposit limitations. Assembly Bill 12, which became law July 1, 2024, makes California the 13th state to limit security deposits to one month’s rent. Housing accessibility advocates touted California’s bill as an opportunity to level the playing field for renters. Opponents of the bill pointed to the restrictions it imposes on owners trying to protect their assets against physical damage and unpaid rent.
The evolving legislation has rental housing operators seeking alternative risk protections and revenue sources in a market that already features widespread rent control. Lease insurance is already gaining traction as the preferred solution.
Lease insurance has proven its ability to power loss prediction on a property-by-
property basis, as well as across portfolios, and it is future-proofing communities against changing risk and legislative actions. By curbing inherent risks, lease insurance puts operators in a position to ease entry requirements, expand access to housing and make renting more affordable.
Doug Pike is a Content Specialist for LinnellTaylor Marketing.