Rent Deposit Insurance: Move In Without Paying Three Months' Rent Up Front

Three months' base rent as a deposit (§ 551 BGB), plus the move, furniture and your first rent payment: when you rent a flat in Germany, you need several thousand euros at once. Rent deposit insurance (Mietkautionsversicherung), more precisely a rent deposit guarantee, replaces the cash deposit. You pay a yearly premium and the insurer acts as guarantor towards your landlord. That helps expats and skilled workers who have only just arrived in Germany. The model has a catch, though, and you should know it before you sign up.

Arjun's story: arrived, but short on cash

Fictional example for illustration; people and events are made up.

Arjun is a software developer from Bengaluru who moves to Münster on an EU Blue Card. After three weeks in a furnished room he finds a two-room flat for 900 euros base rent. The landlord wants a 2,700 euro deposit. On top of that come the first rent, a second-hand kitchen and the removal company. His first German salary won't arrive until the end of the month, and a large part of his savings is still in an Indian account that takes days to transfer from.

Arjun asks the landlord whether he would accept a guarantee instead of cash. The landlord agrees, as long as the certificate arrives before the keys are handed over. Arjun buys rent deposit insurance online. The credit check goes through because he already has a German bank account and a permanent employment contract. The certificate goes straight to the landlord, and the premium is around 135 euros a year. The 2,700 euros stay in Arjun's account and he can furnish the flat without touching his overdraft.

Three years later Arjun moves to a bigger flat. The landlord asks for 400 euros for damaged bathroom tiles. The insurer informs Arjun before paying. Arjun accepts the claim, the insurer pays and then asks him to repay the 400 euros. In total, Arjun has paid around 400 euros in premiums that he won't get back. For him that was fine, because in his first weeks in Germany cash mattered more than interest. Finally, he makes sure the landlord returns the guarantee certificate. Only then does the contract end.

How rent deposit insurance works

The name is a little misleading. The risk covered isn't yours, it's your landlord's. The insurer gives a guarantee for the deposit amount and sends the guarantee certificate to the landlord. If the landlord has justified claims after you move out, such as unpaid rent, a service charge top-up or damage to the flat, they turn to the insurer. The insurer pays and then asks you to pay it back.

Under Section 551 of the German Civil Code (§ 551 BGB), a deposit may be no more than three months' base rent. With a cash deposit you may pay in three monthly instalments, the first at the start of the tenancy. The landlord must keep the money separate from their own assets, and after you move out you get it back with interest, minus any justified claims. With the insurance, you pay a premium every year instead, and that money is gone. The German Insurance Association (GDV) gives a guide figure of around five percent of the deposit per year.

Who a deposit guarantee makes sense for

• New to Germany: After arriving, flights, temporary housing, furniture and household items all add up. Your first salary only comes at the end of the month, and transferring money from home can take days. The guarantee gives you breathing room during this phase.
• Students and trainees: If you have little savings, you don't need a loan or help from your parents to cover the deposit.
• Overlapping moves: Your old deposit often comes back months after you move out, while the new one is due straight away. The guarantee bridges that gap.

If you can pay the deposit in cash without trouble, that is usually cheaper. A cash deposit earns interest, an insurance premium is gone. After five years at five percent, you have paid a quarter of the deposit without anything happening. Rent deposit insurance is a tool for a cash squeeze, not a permanent solution for everyone.

What to check before you sign up

• Landlord's consent: You have no right to a guarantee instead of a cash deposit. Ask first and have the arrangement written into the tenancy agreement.
• Credit check: Insurers check your creditworthiness, usually through Schufa. Whether a provider accepts you without a Schufa history varies. A German bank account and an employment contract help.
• Minimum premium: Many policies charge a minimum premium per year. For small deposits, the real percentage is then well above five percent.
• Right to object: Make sure the insurer informs you before paying your landlord and that you can object.
• End of contract: The contract runs until the landlord returns the guarantee certificate. Forget this after moving out and you keep paying.

The comparison tool is provided by my partner Covomo, and you can sign up online directly. Note that the tool and the insurers' documents are in German. If you have questions about the terms or about agreeing it with your landlord, get in touch, in English. For the other insurance that matters after you arrive, read New to Germany.

What is not covered

Rent deposit insurance only replaces the security for your landlord. It does not cover:

• Your own debts: If the insurer pays your landlord, it claims the money back from you. You still bear unpaid rent or damage in the end.
• Damage to the flat: Rent deposit insurance is not liability insurance. If you damage something in your rented flat, your private liability insurance may cover it, depending on whether the policy includes damage to rented property.
• Your own belongings: Furniture, laptop and clothes are protected by household contents insurance, not by the deposit guarantee.
• Premiums and interest: You don't get your premiums back, and unlike a cash deposit there is no interest.
• Disputes with your landlord: If a disputed claim ends up in court, legal protection insurance with tenancy cover helps you, not the guarantee.